Commission and Promotion: How Does the E‐Commerce Marketplace Develop a Resale Platform?

ABSTRACT Numerous e‐commerce marketplaces are establishing their own resale platforms. Some e‐commerce marketplaces gain profits from resale transactions, while others use the resale platform as a traffic pool for their new products. For example, Taobao.com places many advertisements for new products on its self‐built resale platform, Idle Fish, which is called a promotion strategy. Considering the interaction between the two sources of profit, this study develops an analytical model to investigate how the e‐commerce marketplace with a self‐built resale platform strategically sets resale transaction commission and promotion strategy to maximize profit. The main conclusions are as follows. Firstly, the marketplace may set a low resale transaction commission when the sales price of new products is high when adopting no‐promotion strategy, but it is completely reversed when the promotion strategy is used. Secondly, when the promotion strategy is adopted, the resale transactions will always decrease, but the market clearing price may increase. Lastly, the marketplace should adopt the promotion strategy when the sales price of new products is high, or the durability of products is low. Finally, we examine the impact of repurchase behaviour and the intrinsic impact of promotion on consumer valuation, the main conclusions derived from the baseline model remain valid under both extensions. This conclusion may explain why JD.com does not place any new product advertisements on its resale platform, Paipai.com , which focuses on the resale transactions of pricey products such as laptops and smart phones.