Industrial Engineering and Management Systems

Korean Institute of Industrial Engineers (대한산업공학회)
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On eBay's Fee Structure from a Channel Coordination Perspective

  • Chen, Jen-Ming (Institute of Industrial Management National Central University) ;
  • Cheng, Hung-Liang (Institute of Industrial Management National Central University) ;
  • Chien, Mei-Chen (Department of Industrial and Technology Management Vanung University)
  • Received : 2010.02.10
  • Accepted : 2010.05.17
  • Published : 2010.06.01
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Abstract

Can eBay.com's fee structure coordinate the channel? It's a critical strategic problem in e-commerce operations and an interesting research hypothesis as well. eBay's fees include three parts: monthly subscription fee, insertion fee, and final value fee (i.e., a revenue sharing portion), which represent a generic form of revenue sharing fee structure between the retailer and the vendor in a supply chain. This research deals with such a channel consisting of a price-setting vendor who sells products through eBay's marketplace exclusively to the end customers. The up- and down-stream channel relationship is consignment-based revenue sharing. We use a game-theoretic approach with assumption of the retailer (i.e., eBay.com) being a Stackelberg-leader and the vendor being a follower. The Stackelberg-leader decides on the terms of revenue sharing contract (i.e., fee structure), and the follower (vendor) decides on how many units to sell and the items' selling price. This study formulates several profit-maximization models by considering the effects of the retail price on the demand function. Under such settings, we show that eBay's fee structure can improve the channel efficiency; yet it cannot coordinate the channel optimally.

Keywords

Acknowledgement

Supported by : National Science Council

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