Abstract
Pricing strategies for parcels delivery from e-commerce remain a hot topic for postal and parcel delivery operators. As shown by Borsenberger (2015), the e-commerce sector is subject to concentration trends, due to a fierce price competition between retailers, the existence of increasing returns to scale in e-commerce activity, and the importance of retailers’ reputation to attract consumers.
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Notes
- 1.
The activity of marketplaces is growing in all countries where e-commerce is well developed. In 2013, two million retailers were affiliated to Amazon’s marketplace around the world, selling more than one billion items. In France, according to Oxatis (2014), 32 % of e-retailers sold their goods through marketplaces in 2013. According to the FEVAD (2014), the volume of sales realized in marketplaces increased by 42 % in the last quarter 2013 and represented 16 % of the global activity of these e-retailers. The five first most visited e-commerce sites in France were marketplaces.
- 2.
For example, Amazon proposes to its affiliated merchants the service “Fulfilment by Amazon” (FBA). Merchants pay fees for the various services provided by Amazon: handling the order, picking and packing products, shipping the order (fees depending on the parcel weight and size and the value of order). Rakuten.com offer a similar storage and shipping service to merchants affiliated to its marketplace: Rakuten Super Logistics (RSL).
- 3.
In other words, marketplaces are to some extent similar to consolidators in the letter market. Both structures undermine the ability of the parcel delivery operator to apply nonlinear pricing (of which volume discounts are a special case), unless it can differentiate tariffs between marketplaces (or consolidators) and “regular” customers. In the parcel market such a differentiation appears to be rather difficult, in particular because many marketplaces have emerged as extension of big retailers, a development of which Amazon is a prime example.
- 4.
- 5.
This is certainly true when the postal operator is privatized. But even when it is public, profits from parcel delivery may be vital to compensate for the loss of volume in the letter market.
- 6.
We assume that there is no fixed fee for joining the marketplace.
- 7.
The timing we consider is the classical one in monopoly and particularly utility pricing problems. It is therefore a natural benchmark to consider when taking a first pass at the problem we are dealing with. However, as suggested by Borsenberger (2015) it may overstate the market power of the delivery operator. Because large retailers may have a significant monopsony power, the operator may not be able to commit to a pricing strategy. The threat to develop its own delivery network and bypass the parcel delivery operator, mentioned in the conclusion, could be a way for the biggest retailer to enhance its bargaining power. To gain further insight into the “dynamics” of competition in the e-retail market, our analysis can be extended by considering different specifications of the timing. In particular, it would be interesting to consider a setting where the shipping rate of retailer 0 is determined by a bargaining process and study for instance the Nash bargaining solution. While this goes beyond the scope of the current paper, it is on our agenda for future research.
- 8.
The direct effect of s on π 1, even accounting for the induced increase in price is negative by the envelope theorem. However, as p 1 increases (the best-reply function of retailer 1 shifts upwards) p 0 will increase (prices are strategic complements) which has a positive effect on retailer 1’s profit.
- 9.
This assumption is made for technical reasons. Since one of the possible strategies of retailer 0 may be to set \( s=\tilde{s} \), and we may have existence problems if we adopt the opposite assumption.
- 10.
Formally, the profit maximizing case is obtained by setting the profit target \( \overline{\pi} \) at the monopoly level. Observe that in this case the Lagrange multiplier of the break even constraint will tend to infinity.
- 11.
We vary s by increments of 0.01 in our computations. The values of s reported in Table 3 are the highest for which \( {\pi}_1^{\mathrm{NM}}\ge {\pi}_1^{\mathrm{NI}} \) holds.
- 12.
We have not considered the case where joining the marketplace reduces the perceived quality of the small retailer. In that situation, retailer 1 might nevertheless find it profitable to join the marketplace, but only if this one offers sufficiently low shipping rates.
- 13.
This intuition is illustrated by additional simulations which can be obtained from the authors on request.
References
Borsenberger C (2015) The concentration phenomenon in e-commerce. In: Crew MA, Brennan TJ (eds) Postal and delivery innovation in the digital economy. Edward Elgar, Cheltenham, pp 31–42
Borsenberger C, Cremer H, De Donder P, Joram D, Lécou S (2014) Pricing of delivery services in the e-commerce sector. In: Crew MA, Brennan TJ (eds) The role of the postal and delivery sector in a digital age. Edward Elgar, Cheltenham, pp 75–92
Borsenberger C, Cremer H, De Donder P, Joram D (2015) Quality and pricing of delivery services in the E-commerce sector. In: Crew MA, Brennan TJ (eds) Postal and delivery innovation in the digital economy. Springer International, Cham
Fevad (2014) Bilan du e-commerce en France en 2013, January
Oxatis (2014) Le profil du e-commerçant en 2014, January
Acknowledgements
We thank Anna Möller Boivie, Tim Brennan, Michael Crew, and Alberto Pimenta for their helpful comments.
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Borsenberger, C., Cremer, H., De Donder, P., Joram, D. (2016). Differentiated Pricing of Delivery Services in the e-Commerce Sector. In: Crew, M., Brennan, T. (eds) The Future of the Postal Sector in a Digital World. Topics in Regulatory Economics and Policy. Springer, Cham. https://doi.org/10.1007/978-3-319-24454-9_13
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DOI: https://doi.org/10.1007/978-3-319-24454-9_13
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