Agency selling or reselling? Differentiated medication pricing in a healthcare platform with consultation

Abstract

The rapid evolution of Internet healthcare has enabled online healthcare platforms to enter the healthcare market, where they typically operate under two predominant agreements: agency selling agreements and reselling agreements. Considering the diverse patient demands for medications of varying quality, these platforms strategically introduce medication suppliers with differentiated quality levels to enhance market coverage. This study examines how an online healthcare platform influences patients’ medication choices through a consultation fee and differentiated medication prices under two agreements within a game-theoretic model. Our findings indicate that when the quality differentiation between medications is small, the strategy for introducing medication suppliers varies significantly across different agreements. Moreover, the healthcare platform is more likely to adopt an agency selling agreement and introduce a high-quality supplier when the commission rate and cost of medications are both relatively high, which can result in an increased patient surplus. Surprisingly, we demonstrate that a greater differentiation in medication quality does not always benefit the platform when introducing a high-quality supplier. The study provides strategic insights into how a healthcare platform can effectively balance and enhance both its profitability and patient surplus through careful management of medication quality differentiation.