Title: The online seller's optimal price and inventory policies under different payment schemes

Authors: Shizhen Bai; Na Xu

Addresses: School of Management, Harbin University of Science and Technology, Harbin, 150080, China; School of Management, Harbin University of Commerce, Harbin, 150028, China ' School of Management, Harbin University of Science and Technology, Harbin, 150080, China

Abstract: We develop an analytical model to determine the seller's optimal price and inventory decisions under different e-commerce payment schemes. There are two types of payment schemes for consumers to choose from: pay-to-order, with payment occurring when an order is taken online; and pay-on-delivery, in which payment occurs after delivery of the product. Considering different consumer behaviours after consumers evaluate the products, we characterize the rational expectations equilibrium for the online seller. We obtain the optimal price and order quantity to maximise the online seller's profit under different payment schemes. We provide the conditions when it is feasible for online sellers to offer every payment scheme. Numerical examples are provided to illustrate the comparison of online seller's performance between the two payment schemes. [Received 19 March 2015; Revised 12 July 2015; Revised 6 October 2015; Accepted 5 November 2015]

Keywords: payment schemes; order quantity; prices; e-commerce; pay-to-order; pay-on-delivery; online sellers; optimal pricing; inventory policy; electronic commerce; consumer behaviour; product evaluation; profitability.

DOI: 10.1504/EJIE.2016.076380

European Journal of Industrial Engineering, 2016 Vol.10 No.3, pp.285 - 300

Received: 08 May 2021
Accepted: 12 May 2021

Published online: 05 May 2016 *

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