Integration or Outsourcing? Optimal Choice of Logistics Service for Competing E-tailers

The rapid development of e-commerce has intensified competition among e-tailers in both product pricing and logistics services, prompting them to think about the new question: whether to cooperate with third-party logistics providers or operate their integrated logistics to maximize profits and offer better logistic service to the customers. To address this question, this paper considers two competing supply chains, each one has an e-tailer and a logistics provider. The paper investigates e-tailers' strategic selections between third-party collaboration and vertical integration. By the analyses of game models, the paper obtains three key findings: firstly, compared with outsourcing logistics to third-party provider, self-operated integration logistics can provide consumers with better service and put pressure on the competitors; secondly, both service competition and price competition jointly determine e-tailers' profit and service level. Finally, each e-tailer will implement a self-operated integration logistics strategy in the equilibrium.