Optimal Pricing and Return-Freight Insurance: Strategic Analysis of E-Sellers in the Presence of Reputation Differentiation.

Abstract

Motivated by the practice that e-sellers cooperate with insurance companies to offer consumers the return-freight insurance (RI), this paper aims to investigate the competing e-sellers' RI strategies. Regarding the information asymmetry in the online context, reputation system is widely applied by e-platforms. In an online market with two competing e-sellers that sell the same product but are differentiated in their reputation, this paper builds an analytical model to explore the e-sellers optimal pricing and RI strategies. Combined with sellers' reputation and their RI strategies, the equilibrium outcomes under four cases are discussed. This paper reveals the conditions that e-sellers are willing to offer RI. Specifically, the findings demonstrate that low reputation e-seller is more likely to offer RI. Moreover, when the sellers are more divergent, they are more likely to co-exist in the market. Insurance premium and RI compensation play critical roles in their decisions. RI introduction tends to increase the price, thus offsets the benefits of RI, but does not affect the total consumer surplus.