Cooperation or Co-Opetition? Optimal Offline Showroom Partnership for an Online Manufacturer Under Information Asymmetry

ABSTRACTABSTRACTWhen an online manufacturer suffers from demand reduction and product return caused by product fit uncertainty, it could display products in a retailer's store to provide the chance for consumers to examine whether the product fits their needs. According to whether the product the retailer sells is noncompetitive or competitive, this study considers that there are cooperation and co-opetition strategies for the online manufacturer to realize an offline showroom partnership. In addition, the retailer would provide retail service for consumers who visit the store, while the service cost information is private. Thus, this study explores the optimal offline showroom partnership for an online manufacturer under information asymmetry. The results show that although partnering with a competitive retailer causes product competition, the online manufacturer would prefer the co-opetition strategy if (i) the competition intensity between the two products is low or (ii) the competition intensity is high and the cost to handle the returned product is low, and would prefer the cooperation strategy otherwise. Under the optimal strategy, the online manufacturer should design the contract according to the return handling cost. Nevertheless, the online manufacturer could set a higher price under the co-opetition strategy than that under the cooperation strategy. After comparing the online manufacturer's optimal strategies and profits in different information environments, we find that product competition could reduce the online manufacturer's profit loss caused by information asymmetry under certain conditions, and the online manufacturer with low return handling cost is more willing to adopt the co-opetition strategy under information asymmetry.KEY WORDS AND PHRASES: Supply chain managementoffline showroom partnershipproduct competitioninformation asymmetrycontract design AcknowledgmentThe authors are deeply grateful to the editor and the four anonymous reviewers for their instructive comments on the article.Disclosure statementNo potential conflict of interest was reported by the author(s).Declaration of Interest StatementNo potential conflict of interest was reported by the authors.Supplementary materialSupplemental data for this article can be accessed online at https://doi.org/10.1080/10864415.2022.2158598Additional informationFundingThis work was supported by the National Natural Science Foundation of China (grant no. 72072016), the Youth Foundation of Humanities and Social Sciences of Ministry of Education of China (grant no. 22XJC630009), and the Fundamental Research Funds for the Central Universities (grant no. 2021CDSKXYJG007).Notes on contributorsHaiyue ZhangHaiyue Zhang (zhanghaiyue@cqjtu.edu.cn) is a researcher at the School of Economics and Management, Chongqing Jiaotong University, China. Her research interests include e-commerce, supply chain management, and platform operations. Her work has appeared in European Journal of Operational Research, Electronic Commerce Research Applications, and International Transactions in Operational Research. Dr. Zhang's research is supported by the Youth Foundation of Humanities and Social Sciences of Ministry of Education of China.Xumei ZhangXumei Zhang (zhangxumei@cqu.edu.cn) is a professor at the School of Economics and Business Administration, Chongqing University, China. Her research interests include e-commerce, supply chain management, and operations management. Her work has been published in European Journal of Operational Research, International Journal of Production Economics, International Journal of Production Research, International Transactions in Operational Research, Applied Mathematical Modelling, Journal of the Operational Research Society, and other journals. Dr. Zhang's research is supported by the National Natural Science Foundation of China and the National Key Research and Development Program.Bin DanBin Dan (danbin@cqu.edu.cn; corresponding author) is a professor at the School of Economics and Business Administration, Chongqing University, China. His research interests include supply chain management, e-commerce, and platform strategy. His publications have appeared in European Journal of Operational Research, International Journal of Production Economics, International Journal of Production Research, Electronic Commerce Research and Applications, Computers & Industrial Engineering, and other journals. Dr. Dan's research is supported by the National Natural Science Foundation of China.Ronghua SuiRonghua Sui (suironghua725@163.com) is a Ph.D. student of operations management at the School of Economics and Business Administration, Chongqing University, China. Her research interests include e-commerce and supply chain management. Her publications have appeared in European Journal of Operational Research, Computers & Industrial Engineering, and other journals.