Pricing Scheme and Sales Format When Innovating Products with E-Commerce Platform
Ruohan Ma, Bo He, and Guang Yang
International Journal of Electronic Commerce,
Volume 30, Number 4, 2026, pp. 537-566.
Abstract:
E-commerce platforms can offer product proposals to facilitate manufacturers to innovate, which may increase market demand while imposing innovation costs and risks on manufacturers. It remains unclear whether the widely used reselling and agency formats effectively incentivize innovation by manufacturers, and how pricing schemes (commitment pricing and responsive pricing) for new products mitigate innovation risks. Using a game-theoretic model, we investigate the effects of pricing schemes and sales formats when a manufacturer innovates products with an e-commerce platform. Our findings are as follows: (1) Responsive pricing with the agency format (the RA strategy) maximizes the manufacturer’s investment intensity. This is because the agency format eliminates the double marginalization effect, while responsive pricing optimizes the retail margin by matching prices to realized market states. (2) The platform prefers the RA strategy because it earns higher revenue without bearing R&D or market testing costs. However, the manufacturer adopts this strategy only if the market testing cost is low, creating a Paretoimproving region. In this region, the optimal commission rate allocates revenues equally, reflecting the symmetric contributions of the platform’s product proposal and the manufacturer’s R&D investment. (3) We extend the model to account for more scenarios, including asymmetric testing costs, the reservation profit, and accurate product proposals. This paper contributes to the theory by revealing how sales formats and pricing schemes interact to allocate risks and incentives under double innovation uncertainties, and provides managerial insights for implementing product innovation with an e-commerce platform.