Manufacturer's Optimal Distribution Strategy in the Platform Supply Chain : Bundling or Add-On?

As the distribution strategy, the bundle and add-on strategy has been widely applied to sell the base goods and add-on goods in retail markets. Meanwhile, the rapid growth of e-commerce has also forced more platforms to participate in the above strategies. Motivated by these, we consider three possible distribution strategies: the bundled by the base manufacturer strategy, the bundled by the platform strategy, and the add-on strategy, and further analyze the manufacturer’s optimal strategy in a platform supply chain. Our finding shows that, if only the bundling strategy is available, the base manufacturer can benefit from the bundle by itself strategy when the platform’s commission fee and bundle product’s marginal cost are low. The platform would be better off from such a strategy when the commission fee is low and the marginal cost is moderate, or the commission fee is high while the cost is low, or the marginal cost is very high. Therefore, the manufacturer bundling or platform bundling strategy might create a win-win situation for them under certain conditions. Moreover, compared with the bundling strategy, the bundle’s price under the add-on strategy will be lower if the commission fee is low, thus attracting more consumers to purchase the bundles. In addition, we explore the impact of relevant factors on the firms’ and supply chain’s profits. The result shows that when the base goods’ marginal cost is low, the add-on strategy is always the optimal strategy; with the cost increases, the bundled by the base manufacturer might be optimal if the commission fee is low