Consistent Pricing or Inconsistent Pricing: A Tool to Deal with Dominant E-tailers

Manufacturer, as a dominated player, often sells products via competing dominant platforms (e.g., Amazon.com, Tmall.com, et al.). The investigation reveals that prices of same products on different platforms are sometimes the same and sometimes different. This phenomenon yields a novel research problem: Why these pricing strategies (consistent pricing and inconsistent pricing) exist? How should the weak manufacturer choose an appropriate one and protect his profits? We focus on it and model the problems by considering two important factors, i.e., competition between e-tailers and spillover effect from online channel to offline channel. By employing Stackelberg approach to our analysis where dominant e-tailers play as the leader and the manufacturer plays as the follower, we have two new findings: For the e-tailer, he always prefers inconsistent pricing regardless of spillover effect and platform competition. However, manufacturer prefers this strategy only when the spillover is negative. In case that the spillover is positive, manufacturer can use consistent pricing as a tool to mitigate competition between e-tailers, which improves not only online sales but also offline sales, and in turn increases manufacturer’s profits.