Kwark-Chen-Raghunathan_Platform or Wholesale
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Kwark-Chen-Raghunathan_Platform or Wholesale
Platform or Wholesale? A Strategic Tool for Online Retailers to Benefit from Third-Party Information*Young Kwark Warrington College of Business Admini Kwark-Chen-Raghunathan_Platform or Wholesaleistration. University of Florida 347 Stuzin Hall, PO Box 117169, Gainesville, FL 32611Phone: (352) 392-961)0; Fax: (352) 392-5438Email: youngkwark@ufl.eduJianqing ChenJindal School of Management. The University of Texas at Dallas 800 West Campbell Road. Richardson. TX 75080Phone: (972) 883-2458; Fax Kwark-Chen-Raghunathan_Platform or Wholesale: (972) 8|3-2089 Email: chenjqo utdallas.eduSrinivasan RaghunathanJindal School of Management, The University of Texas at Dallas 800 West Campbell RoaKwark-Chen-Raghunathan_Platform or Wholesale
d, Richardson, TX 75080Phone: (972) 883-4377; Fax: (972) 883-2089 Email: sraghu@utdallas.edu’We thank the detailed and constructive comments from the Platform or Wholesale? A Strategic Tool for Online Retailers to Benefit from Third-Party Information*Young Kwark Warrington College of Business Admini Kwark-Chen-Raghunathan_Platform or Wholesaleeminar participants at Tsinghua University, Southern Methodist University, University of Hawaii, and The University of Texas at Dallas for their helpful feedhack.https://khothuvien.cori!Platform or Wholesale? A Strategic Tool for Online Retailers to Benefit from Third-Party InformationAbstractOnline Kwark-Chen-Raghunathan_Platform or Wholesale retailing is dominated by a channel struct lire in which a retailer either buys products from competing manufacturers and resells to consumers (wholeKwark-Chen-Raghunathan_Platform or Wholesale
sale scheme) or lets manufacturers directly sell to consumers on its platform for a commission (platform scheme). Easy access to publicly available thPlatform or Wholesale? A Strategic Tool for Online Retailers to Benefit from Third-Party Information*Young Kwark Warrington College of Business Admini Kwark-Chen-Raghunathan_Platform or Wholesalenline retailing. We show that retailers can use the upstream pricing scheme, wholesale or platform, as a strategic tool to benefit from third-party information. Information on the quality dimension homogenizes consumers' perceived utility differences between competing products and increases the upst Kwark-Chen-Raghunathan_Platform or Wholesaleream competition, which benefits the retailer under the wholesale scheme but hurts the retailer under the platform scheme. Information on the tit dimeKwark-Chen-Raghunathan_Platform or Wholesale
nsion heterogenizes consumers’ estimated fits to the products and softens the upstream competition, which hurts the retailer under the wholesale schemPlatform or Wholesale? A Strategic Tool for Online Retailers to Benefit from Third-Party Information*Young Kwark Warrington College of Business Admini Kwark-Chen-Raghunathan_Platform or Wholesaleenefit from third-party information by adopting the wholesale (platform) scheme if the quality dimension plays a dominant role and by adopting the platform (wholesale) scheme if the fit dimension plays a dominant role. The results reveal that the quality information and fit information play very dif Kwark-Chen-Raghunathan_Platform or Wholesaleferent roles in changing the upstream competition, ami whether the retailer can benefit from the third-party information depends on its pricing schemeKwark-Chen-Raghunathan_Platform or Wholesale
choice, the precision of the third-party information, and the relative importance of quality and fit attributes in consumers' evaluation of products.Platform or Wholesale? A Strategic Tool for Online Retailers to Benefit from Third-Party Information*Young Kwark Warrington College of Business Admini Kwark-Chen-Raghunathan_Platform or Wholesale few years. Forrester Research (2012) reported that online retail sales reached $200 billion in 2011 and accounted for 7 percent of overall retail sales in the U.S. Two distinctive features of online retailing have been well documented (Chen and Xie, 2008: Abhishek el al., 2013). One. in addition to Kwark-Chen-Raghunathan_Platform or Wholesale selling products using a wholesale scheme ill which (he retailer purchases products from manufacturers and then resells to consumers, an online retaiKwark-Chen-Raghunathan_Platform or Wholesale
ler (e.g., Amazon) often lets others sell their products on its platform for a commission fee for each sale which we refer to as platform scheme. Two.Platform or Wholesale? A Strategic Tool for Online Retailers to Benefit from Third-Party Information*Young Kwark Warrington College of Business Admini Kwark-Chen-Raghunathan_Platform or Wholesales that enable consumers and experts to post product reviews and read others’ reviews. Such I hird-party information has been deemed as an iuiluenlial source for consumer decisions (Deloitte and Touche, 2008; Cone, 2010). In particular, third-party information has become an important information sour Kwark-Chen-Raghunathan_Platform or Wholesalece for consumers to mitigate the uncertainty about rhe quality of a product and about its fit to their needs (Chen and Xie. 2008).We use the term thirKwark-Chen-Raghunathan_Platform or Wholesale
d-party information to refer to any publicly available and easily accessible product-related information created by parties other than the sellers retPlatform or Wholesale? A Strategic Tool for Online Retailers to Benefit from Third-Party Information*Young Kwark Warrington College of Business Admini Kwark-Chen-Raghunathan_Platform or Wholesalets consumers but also about its impact on upstream firms, especially because a retailer generally cannot control the availability or content of third-party information ami its influence on consumers, but a dominant retailer is often able to control its relationships with the upstream manufacturers. Kwark-Chen-Raghunathan_Platform or WholesaleConsequently, from a retailer’s perspective, the impact of third-party information on manufacturers and its upstream strategies becomes significant.OnKwark-Chen-Raghunathan_Platform or Wholesale
e important decision related to a retailer’s upstream relationship with manufacturers is the pricing scheme adopted by the retailer. Il appears that tPlatform or Wholesale? A Strategic Tool for Online Retailers to Benefit from Third-Party Information*Young Kwark Warrington College of Business Admini Kwark-Chen-Raghunathan_Platform or Wholesalee more than two million products in the "Electronics” category and the remaining 93% are sold under the platform scheme. On the other hand, Amazon uses wholesale scheme for 64 of the top 100 bestsellers in the electronics category (.Jiang et al.. 2011). The relative fraction of items sold using thes Kwark-Chen-Raghunathan_Platform or Wholesalee schemes depends on product category too. For instance, while Amazon sells 16.7% of shoes directly, it sells only 3.1% of products ill Sports & OutdoKwark-Chen-Raghunathan_Platform or Wholesale
ors category and 3.2%I of products in the Jewelry category. Furthermore, the platform scheme, also referred to as the agency model, has become prevalePlatform or Wholesale? A Strategic Tool for Online Retailers to Benefit from Third-Party Information*Young Kwark Warrington College of Business Admini Kwark-Chen-Raghunathan_Platform or Wholesaleselling intermediaries have adopted platform2scheme in some product categories (e.g., Amazon.com. Alice.com. Jingdong.com).We show in this paper that a dominant retailer can indeed use the upstream pricing scheme Io benefit from the third-party information. Specifically, we show this result by answe Kwark-Chen-Raghunathan_Platform or Wholesalering the following key questions: How does the third-party information affect competition between upstream sellers in rhe online retailing industry? HKwark-Chen-Raghunathan_Platform or Wholesale
ow does the pricing scheme affect the impact of the third-party information on the retailer and upstream sellers? How does product category affect thiPlatform or Wholesale? A Strategic Tool for Online Retailers to Benefit from Third-Party Information*Young Kwark Warrington College of Business Admini Kwark-Chen-Raghunathan_Platform or Wholesaleed by different manufacturers or provides a platform for the manufacturers to sell their products. The products differ in both their qualifies and the fits to consumers' needs. Quality of a product refers to the degree of excellence of the product and consumers agree on the preference order of quali Kwark-Chen-Raghunathan_Platform or Wholesalety in that they all prefer high quality to low quality. On the contrary, jit is consumer-specific—different consumers have different needs, wit 11 somKwark-Chen-Raghunathan_Platform or Wholesale
e consumers perceiving one product more suitable I han I he other product while ot hers perceiving the opposite way. Each consumer has her own assessmPlatform or Wholesale? A Strategic Tool for Online Retailers to Benefit from Third-Party Information*Young Kwark Warrington College of Business Admini Kwark-Chen-Raghunathan_Platform or Wholesalesions. We distinguish tli<» case in which the quality dimension plays a dominant role in determining consumers’ perceived utility differences between the two products, and the case in which the fit dimension plays an important role such that the fit is critical for some consumers. We call the former Kwark-Chen-Raghunathan_Platform or Wholesale the quality-dominates-Jit case ami the latter the Jit-(loutmates-quality case.We find the third-party information in the quality dimension ami fit diKwark-Chen-Raghunathan_Platform or Wholesale
mension has very different effects on the competition between upstream manufacturers. For the quality dimension. we show that the third-party informatPlatform or Wholesale? A Strategic Tool for Online Retailers to Benefit from Third-Party Information*Young Kwark Warrington College of Business Admini Kwark-Chen-Raghunathan_Platform or Wholesalethis reduced heterogeneity resulting from the the third-party information variancereducing effect, which generally hurts manufacturers. This effect is more salient when the information in quality dimension is more precise. In addition, the third-party information shifts the mean perceived quality di Kwark-Chen-Raghunathan_Platform or Wholesalefference in favor of the product with favorable comments. We call this mean-shifting effect, which generally benefits the manufacturer that receives fKwark-Chen-Raghunathan_Platform or Wholesale
avorable information and the retailer. In contrast, for the fit dimension, we demonstrate that consumers are differentiated further from each other inGọi ngay
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