Differential Revenue Sharing in Platform Selling: A Framework Incorporating Pricing Decisions

Abstract

Numerous Internet platforms have amassed considerable profits through market dominance, thereby exhibiting monopolistic behaviors in specific instances. In response to ensuing protests and legal actions, these platforms have been compelled to restructure their prevailing single-rate revenue sharing schemes, adopting differential designs aimed at redistributing more revenue to suppliers. In this article, we construct a two-tier supply chain model encompassing a platform with a large supplier and numerous smaller suppliers under price competition. Our investigation establishes that, in contrast with the single-rate scheme, the implementation of a differential revenue sharing scheme can significantly alleviate the financial pressures faced by small suppliers and provides substantial profit increase. Under specific conditions, this scheme also demonstrates a propensity to enhance the overall welfare of the platform and large supplier. Moreover, we illustrate that the adoption of differential scheme incentivizes both large and small suppliers to formulate distinct pricing strategies in most cases, avoiding traditional price wars, thereby mitigating the direct and potential competitive pressures among suppliers. Notably, the differential scheme appears to impose constraints on the platform's ability to extract substantial profits, yet paradoxically facilitates increased revenue generation and sustains a balance between large and small suppliers, fostering the platform's long-term dominance.