Procurement strategies of E-retailers under different logistics distributions with quality- and service-dependent demand

This paper develops game-theoretic models to study a procurement strategy problem faced by an e-retailer selling products online under different logistics distribution systems. The e-retailer can purchase products directly from a manufacturer under its own brand or indirectly from a brand-name company and then deliver the products to consumers through logistics services. By comparing and analysing e-retailers’ procurement equilibrium strategies under different logistics, we find that e-retailers with different logistics systems have identical procurement preferences when the procurement cost is low or high. However, when the procurement cost is moderate, the e-retailer with third-party logistics is more motivated to adopt direct procurement. In addition, when indirect procurement has a smaller market influence, e-retailers are more inclined toward direct procurement even if the demand is more sensitive to brand-name products. Furthermore, under certain conditions, pricing rules are quite opposite between different procurement modes such that the price decreases even if the cost is more sensitive to the logistics service level in indirect procurement. Moreover, the brand-name company may set a lower resale price instead when improving quality becomes more expensive.