Interactions of competing manufacturers’ leader-follower relationship and sales format on online platforms

Currently, manufacturers can sell products on e-tailers’ online platforms through agency sales format or reselling format. However, how to choose the best sales formats has puzzled competing manufacturers in practice. The main purpose of this paper is to answer this problem by considering the combined effects of manufacturers’ leader-follower relationships, the e-tailer’s referral fees, the difference in products’ substitutable degrees and the difference in products’ market bases. Our results show that, if demand functions are linearly price-dependent, when two manufacturers sell substitutable products on the same e-tailer’s online platform, the e-tailer’s best action is always to let both manufacturers adopt reselling format; regardless of one manufacturer’s sales format, the other manufacturer always prefers agency sales format, which are independent of the e-tailer’s referral fees, the difference in two products’ substitutable degrees and the difference in two products’ market bases. Whether demand functions are linear or nonlinear in retail prices, the e-tailer’s best action is to let both manufacturers whose products are symmetric adopt reselling format; no matter what sales format one manufacturer adopts, the other manufacturer always prefers agency sales format, which are independent of the two manufacturers’ leader-follower relationships. Moreover, if two manufacturers adopt same sales format to sell symmetric products, leader role enables a manufacturer to charge higher optimal wholesale/retail price when demand functions are linear in retail prices, but the two products have equal optimal wholesale/retail prices regardless of the two manufacturers’ leader-follower relationships when demand functions are nonlinear in retail prices.