Capital-constrained third-party logistics firm encroachment with a retail platform

Abstract

In practice, many third-party logistics firms (3PLs) leverage parcel delivery traffic to encroach into the retail market, with firms such as SF Express and China Post already engaging in product sales through live streaming. However, establishing a retail channel requires substantial financial investment, driving capital-constrained 3PLs to explore financing options. To investigate the encroachment and financing strategies of 3PLs, we develop a game-theoretic model in which a retail platform sells products while a capital-constrained 3PL manages product transportation and retains the option to enter the retail market. Two financing sources are considered: bank financing and platform financing. Our analysis of encroachment strategies reveals that 3PL encroachment is discouraged when the disparity in logistics services is minimal or when the market-entry cost is prohibitively high. Although 3PL encroachment undermines the platform’s profitability, the adoption of platform financing can transform such encroachment into a win-win scenario, benefiting both the retail platform and the 3PL. Regarding financing strategies, we identify a Pareto improvement region where platform financing benefits both the 3PL and the platform, irrespective of whether 3PL encroachment occurs. Interestingly, the 3PL’s encroachment strategy significantly affects its financing preferences: the 3PL prefers platform financing at a higher interest rate in the absence of encroachment but favors platform financing at a lower interest rate when encroachment occurs. Finally, we investigate the practicality of portfolio financing and verify the robustness of these findings. Our results provide valuable insights into the formulation of 3PL encroachment and financing strategies, offering actionable recommendations for retail platforms to respond effectively under diverse circumstances.