Is It Always Advantageous to Establish Self-Built Logistics for Online Platforms in a Competitive Retailing Setting?

Logistics service is a demand-enhancing approach through which platforms can deliver self-owned and third-party (3P) products. A key issue is whether platforms deliver products through 3P or self-built logistics with a certain construction cost. To solve this problem, we investigate the strategic rationale by proposing comparisons among five different service modes with and without self-built logistics. The results show that if the platform has no self-built logistics, then it would not provide 3P logistics agency service to the retailer. Under certain conditions, the platform benefits from the establishment of self-built logistics and is willing to offer self-built or 3P logistics agency service. In addition, we analyze the effects of significant parameters on the prices, demands, and profits of online supply chain members in different service modes. Based on the theoretically derived findings, we have the following practical implications. When the self-built logistics level is high, the platform chooses to establish self-built logistics and is willing to provide logistics service to retailer. When the 3P logistics cost is high, the platform chooses to introduce self-built logistics but is unwilling to share logistics service with retailer. If the platform has its own logistics, as the self-built logistics cost or fee increases, the platform’s retail price increases and the demand of self-owned products decreases.