Information service and quality strategies in a supply chain

E-commerce platforms (EPs) commonly provide information services. This study explores an EP’s information service strategy and an original equipment manufacturer’s (OEM) quality strategy in a supply chain. The OEM outsources production to a competing contract manufacturer (CM), and both the OEM and the CM sell their products through the platform, paying a preset commission. The EP decides whether to provide information on consumer quality preferences to the two manufacturers, incurring an associated cost. The OEM needs to determine its product quality strategy by strategically setting the optimal quality level relative to the CM’s product. By developing a game-theoretical model, we derive the optimal information service strategy for the EP and the quality strategy for the OEM. Our findings show that the platform prefers to provide the information services when the CM’s product has a low cost-quality ratio or when obtaining the information is inexpensive. In addition, the OEM opts for lower product quality relative to the CM’s product when the cost-quality ratio is high. We identify two effects of the EP’s information service: increasing product quality investment (quality-discrimination effect) and intensifying competition (competition-intensification effect) driven by price adjustments. These effects significantly impact the OEM’s quality strategy when consumers have low-quality preferences, leading to reduced quality and selling price when the cost-quality ratio of the CM’s product is low. Interestingly, these effects may conflict, inducing the OEM to increase both quality and selling price when this ratio is relatively high. Our study provides valuable managerial insights, suggesting that EPs should provide the information service when the CM’s product has a low cost-quality ratio or when obtaining consumer quality preferences is inexpensive. OEMs should strategically adjust their product quality relative to the CM’s product, especially when targeting consumers with low quality preferences. Extensions confirms the robustness of the major results derived from our main model.