On channel coordination under price‐dependent revenue‐sharing: can eBay's fee structure coordinate the channel?

This article deals with the problem of coordinating a vertically separated channel under consignment contracts with a price‐dependent revenue‐sharing (R‐S) function. We consider the retailer being a channel leader who offers the vendor a leave‐it‐or‐take‐it contract, and the vendor being a price‐setting firm who sells the one‐of‐a‐kind goods through the exclusive channel. Under such a setting, the retailer decides on the term of R‐S contract, and the vendor determines the retail price of the product. For each item sold, the retailer deducts an agreed‐upon percentage from the price and remits the balance to the vendor. We model the decision‐making of the two firms as a Stackelberg game, and carry out equilibrium analysis for both the centralized and decentralized regimes of the channel with consideration of three kinds of contracts: the fixed, the price‐increasing, and the price‐decreasing R‐S percentage. Our analysis reveals that the contract with a price‐decreasing R‐S function, for example, the fee structure adopted by eBay.com, performs worse than the others. It persists in a consistent bias: the price‐decreasing R‐S induces the vendor to choose a higher price, and the retailer tends to receive a lower R‐S percentage, which leads to less demand quantity, less profit, and channel inefficiency.