Management Review

›› 2020, Vol. 32 ›› Issue (2): 278-286.

• Logistics and Supply Chain Management • Previous Articles     Next Articles

Design of Commission Contract in Offline to Online Supply Chain in the Presence of Showroom

Zhang Xumei1, Jin Liang2   

  1. 1. School of Economics and Business Administration, Chongqing University, Chongqing 400044;
    2. School of Economics and Management, Nanchang University, Nanchang 330031
  • Received:2017-05-15 Online:2020-02-29 Published:2020-03-07

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Abstract:

This paper explores commission contract design in an offline to online (O2O) supply chain where an online retailer sells a product and an offline showroom provides experience service to consumers. Considering that consumers are uncertain about whether the product sold by online retailer fits their needs, we establish a principal-agent model between the online retailer and the offline showroom. Then we design the optimal commission contracts in two scenarios where offline experience service effort is observable and is unobservable to the online retailer, respectively. Further, the impact of return rate and consumers' return cost on the equilibrium results is analyzed. The results show that commission rate and fixed payment of the optimal commission contracts have different incentives to the offline showroom. Compared with the observable scenario of the offline experience service effort, the unobservability of the offline experience service effort leads to the decline of the online retailer's profit; but when consumers have higher probability to purchase through the online retailer or the return rate is higher, the profit loss of the online retailer which caused by the unobservability of the offline experience service effort will decrease effectively.

Key words: O2O supply chain, showroom, online retailer, commission contract