Marketplace or reseller? Platform strategy in the presence of customer returns

This paper examines the selling strategy of an internet platform retailer in the presence of customer returns. A supplier may sell its product through the platform retailer and also through its own (direct) channel. The platform retailer may either be a reseller of the supplier’s product or a marketplace (charging a commission to provide platform services to the supplier, who sells the product through the platform). When the platform retailer is a reseller it offers a money-back guarantee (MBG) returns policy; when it is a marketplace, it requires that the supplier offer the MBG on sales through the marketplace. We identify the conditions under which the supplier should also offer an MBG in the direct channel. We identify the platform retailer’s optimal selling strategy (as marketplace or reseller) and the associated conditions. We show that the platform retailer should choose a reselling strategy if the selling efficiencies in both channels are either significantly different or sufficiently close, and otherwise the platform retailer should choose a marketplace strategy. The regions that achieve win–win for both supply chain members are identified.