European Journal of Operational Research 296 (2022) 601–614

Contents lists available at ScienceDirect

European Journal of Operational Research

journal homepage: www.elsevier.com/locate/ejor

Decision Support

The impacts of e-tailer’s private label on the sales mode selection:

From the perspectives of economic and environmental sustainability
Xiuyi Zhang, Wenhua Hou∗
Business School, Nankai University, 94 Weijin Road, Tianjin 300071, PR China

a r t i c l e i n f o a b s t r a c t

Article history: In recent years, some e-tailers have introduced private labels to compete with manufacturers’ products
Received 15 October 2020 in end markets. With this in mind, manufacturers who sell products through e-tailers should consider
Accepted 7 April 2021
carefully when choosing the online sales mode. In this paper, we examine two prevalent sales modes
Available online 16 April 2021
and find that the manufacturer should adopt agency selling (reselling) when the percentage fee is low
Keywords: (high). When the percentage fee is moderate, with a high brand advantage, the manufacturer prefers re-
E-commerce selling due to the high effective price. However, the e-tailer prefers agency selling because the percentage
Sales modes fee is more attractive than the decision right of sales quantities. Interestingly, though the manufacturer’s
Private labels and the e-tailer’s preferences over the sales modes seem opposite, they may both prefer agency selling
Environmental sustainability if the percentage fee and the brand advantage are moderate. Besides, we compare the sales modes from
Agency selling the environmental sustainability perspective and identify two influence factors, i.e., total sales quantities
and the manufacturer’s market share. The simultaneous improvement of the manufacturer’s profits, the
e-tailer’s profits and the environmental performance is achievable under agency selling. Moreover, it is
insightful to find that if the manufacturer’s production technology is enough environmentally friendly,
the optimal sales mode in terms of economic sustainability certainly outperforms in environmental sus-
tainability. In the extension, we discuss how asymmetric production and sales costs influence our results.
We find that our main findings still hold and further if the manufacturer’s sales costs are high, the “win-
win-win” situation can be reached under either reselling or agency selling.
© 2021 Elsevier B.V. All rights reserved.

1. Introduction popular private label now (MarketplacePulse, 2020). Kogan.com,

In the last decade, firms have increasingly developed their on-
line channels and turned to online retailing through e-commerce
platforms (also called e-tailers). One indicator of this trend is
the growth of global retail e-commerce sales, which have already
reached $3.5 trillion in 2019 and even under the pandemic, it
was estimated to be $3.914 trillion in 2020 (eMarketer, 2020).
Amazon, the leading e-tailer in the United States, has achieved
close to $280.5 billion net sales in 2019. The Chinese corporation
Alibaba Group recorded an e-commerce revenue of $47 billion in
2020 (statista, 2020a). These prominent e-tailers, giving manu-
facturers tremendous opportunities to increase their sales, have
recently developed their private labels. For example, in 2009,
Amazon introduced its first private label AmazonBasics which
offers household goods and electronics and becomes the most
∗
Corresponding author.
E-mail addresses: xiuyi.zhang@mail.nankai.edu.cn (X. Zhang),
whhou@nankai.edu.cn (W. Hou).
an e-commerce platform in Australia, owned 20 private labels and
sales under these labels accounted for 49.7% of overall gross profit
in 2019 (Kogan.com, 2020). Besides, JD.com and Alibaba Group
also started to establish their private labels in 2019.
In practice, manufacturers can sell their products via e-tailers
under two sales modes: agency selling and reselling. Under agency
selling, the manufacturer sells products directly to consumers and
shares profits with the e-tailer based on a percentage fee. While
under reselling, the e-tailer purchases products from the manufac-
turer and then resells to consumers. Actually, most e-tailers offer
both agency selling and reselling to manufacturers. For example,
on Amazon, 53% of paid units were sold under agency selling in
the second quarter of 2020 (statista, 2020c). On JD.com, revenue
from reselling accounted for about 88.5% of the total revenue in
2019 (statista, 2020d).
Though the sales mode selection problem has already attracted
attention from both firms and scholars, the e-tailers’ private labels
may influence manufacturers’ decisions. First, under reselling, the
e-tailer may reduce orders from the manufacturer to increase
its own private label products’ sales. Second, the private label’s

https://doi.org/10.1016/j.ejor.2021.04.009
0377-2217/© 2021 Elsevier B.V. All rights reserved.
X. Zhang and W. Hou
Table 1
Percentage of product sales from two sales modes and private labels in Amazon’s
2019 fiscal year.
Category Private labels Agency selling Reselling
Softlines 2.5% 72% 25.5%
Home and kitchen 1.3% 67% 31.7%
Consumer electronics 1.3% 57% 41.7%
Consumables 0.8% 59% 40.2%
and the manufacturer’s products will compete in end markets.
In practice, many manufacturers have complained that Amazon
favored its private labels at the expense of sellers on the platform,
especially the agency-selling sellers (YahooFinance, 2021). Further,
Amazon’s sales data reveals that the percentage of product sales
from agency selling and reselling are related to private labels
(Amazon, 2021). As shown in Table 1, in the category of softlines,
the platform’s private labels were relatively popular and agency
selling represented 72% of total sales. However, in the category
of consumables, private labels had poor performance and agency
selling only represented 59% of total sales. The difference in the
percentage of sales illustrates that manufacturers’ preferences for
sales modes may depend on the competitive private labels.
Thus, in this paper, we investigate the manufacturer’s sales
mode selection problem when the e-tailer introduces the private
label products. Our research questions are as follows: (1) Facing
the e-tailer’s private label, when should a manufacturer adopt
agency selling versus reselling? (2) Given the sale mode, how
should the manufacturer decide the wholesale price or sales
quantities? Also, how should the e-tailer decide the sales/order
quantities? (3) Do there exist incentive alignment opportunities
for both the manufacturer and the e-tailer to prefer one specific
sales mode? (4) Considering the supply chain sustainability, which
sales mode is more environmentally friendly? Can one sales mode
achieve both economic sustainability and environmental sustain-
ability? (5) How would the results change if the manufacturer and
the e-tailer have asymmetric production or sales costs for online
retailing?
To answer these questions, we develop a stylized model com-
prising a manufacturer and an e-tailer. The manufacturer sells his
products via the e-tailer under either agency selling or reselling.
Also, the e-tailer sells private label products which compete with
the manufacturer’s in the downstream market. We first analyze the
manufacturer’s and the e-tailer’s optimal decisions on sales quan-
tities. Then we discuss whether two firms’ preferences over the
sales modes can be reconciled from the economic sustainability
perspective and compare the environmental performance of two
sales modes from the environmental sustainability perspective.
Our findings are mainly as follows.
First, the manufacturer’s preference over sales modes depends
on the percentage fee and his brand advantage. When the percent-
age fee is low, he prefers agency selling because he can reserve the
right to decide sales quantities and keep most of his profits. When
the percentage fee is moderate and the brand advantage is low, he
also chooses agency selling, where he can obtain relatively high
income from unit product. Second, the e-tailer prefers agency sell-
ing when the percentage fee is moderate and the brand advantage
is high or when the percentage fee is high. With a high percentage
fee, the e-tailer can gain a lot from the manufacturer’s profits. And
with a high brand advantage, the right to decide sales quantities
is less valuable, thus the e-tailer is more profitable under agency
selling. Third, though the preferences of the manufacturer and the
e-tailer seem opposite, we find that they can achieve incentive
alignment under agency selling if the percentage fee and the
brand advantage are moderate. Fourth, when considering the sales
modes’ environmental impacts, two influence factors, total sales
602
European Journal of Operational Research 296 (2022) 601–614
quantities and manufacturer’s market share, play important roles.
In addition, the manufacturer, the e-tailer and the environment
can reach the “win-win-win” situation under agency selling.
More interestingly, if the manufacturer’s production technology is
enough green, the optimal sales mode with economic sustainabil-
ity is certainly the one with environmental sustainability. Fifth, if
the sales costs are relatively high, the manufacturer is reluctant to
be in charge of sales under agency selling, thus the above three
parts can also reach the “win-win-win” under reselling.
This study makes several contributions. First, the introduction
of e-tailer’s private labels makes the interactions between the
manufacturer and the e-tailer more complicated. Thus, it is signif-
icant to take the private labels into consideration when analyzing
the sales mode selection problem, which to the best of our knowl-
edge, has not been studied before. Second, we consider both the
manufacturer’s and the e-tailer’s preferences over the sales modes
and identify the “win-win” situation. Our findings can not only
explain why different sales modes are adopted in practice but
also guide e-tailers and manufacturers to develop online retailing
in the future. Third, e-commerce helps manufacturers increase
product sales but simultaneously enhances the environmental bur-
den due to production expansion. However, few studies analyze
e-commerce from the environmental sustainability perspective. In
this paper, we compare the environmental performance of two
sales modes and the results are insightful for governments that
focus on reducing pollution.
The remainder of the study is organized as follows. We re-
view the related literature in Section 2. Then we present our main
model in Section 3. In Section 4, we analyze the model and derive
the results. Section 5 shows the environmental performance of two
sales modes. Section 6 contains model extensions to confirm the
robustness of our main results and derive new findings. Finally, we
conclude the study and provide management insights in Section 7.
2. Literature review
Our study is related to three streams of research: online
sales modes, private labels and supply chain’s environmental
sustainability.
As online retailing booms, there is a vast literature on two
prevalent sales modes, i.e., agency selling and reselling. Some
papers studied whether the agency selling mode should be in-
troduced in addition to the reselling mode. Yan, Zhao, and Xing
(2019) found that even the manufacturer has the disadvantages
of sales efficiency and demand information, he may benefit from
the introduction of the agency selling channel. Yan, Zhao, and Liu
(2018) demonstrated that the manufacturer and the e-tailer can
achieve a Pareto improvement when introducing the agency sell-
ing if the spillover effects of online to offline sales are moderate.
Mantin, Krishnan, and Dhar (2014) discussed that introducing the
agency selling can improve the e-tailer’s bargaining position in
negotiations with the manufacturer under reselling. More similar
to this paper, some researchers focused on the sales mode selec-
tion and compared the agency selling and reselling considering
different influence factors, such as data-driven marketing (Liu,
Yan, Li, & Wei, 2020), information sharing (Zhang & Zhang, 2020),
competing manufacturers (Tian, Vakharia, Tan, & Xu, 2018; Wei, Lu,
& Zhao, 2020; Zennyo, 2020), logistics services (Qin, Liu, & Tian,
2020), product quality (Zhang, Cao, & He, 2019) and cross-channel
spillovers (Abhishek, Jerath, & John Zhang, 2015). However, dif-
ferent from the existing works, we compare two sales modes
considering the introduction of private label products. When
offering competing products to end markets simultaneously, the
interactions between the manufacturer and the e-tailer become
more complicated and thus their preferences over the sales modes
are more strategic, which is worthy of research.
X. Zhang and W. Hou European Journal of Operational Research 296 (2022) 601–614

Our work is also closely related to the studies on private Table 2

Summary of literature.
labels. Before the advent of the e-commerce era, some physi-
cal retailers have already launched their private labels. Hence, Representative paper Agency Reselling Private Environmental
based on bricks and mortar retailers, many papers studied the selling label sustainability
competition between national brands and private labels (Bauner, Wei et al. (2020) Yes Yes No No
Jaenicke, Wang, & Wu, 2019; Hökelekli, Lamey, & Verboven, 2017; Zhang and Zhang (2020) Yes Yes No No
Nenycz-Thiel, Sharp, Dawes, & Romaniuk, 2010). Ru, Shi, and Ryan et al. (2012) Yes No Yes No
Zhou et al. (2019) No Yes Yes No
Zhang (2015) showed that the private label can reduce the double
Niu et al. (2020b) No Yes No Yes
marginalization effect and benefit the manufacturer. Similarly, This paper Yes Yes Yes Yes
Zhou, Liu, and Cai (2019) found that with in-store promotion and
its spillover effect, manufacturers can be in favor of the private
label introduction. Zippel, Wilkinson, and Vogler (2013) used a
3. Model
grounded theory approach to examine the private label’s influence
on the cooperation between manufacturers and retail chains.
We consider a stylized model comprising a manufacturer and
Compared to the richness of studies on physical retailers’ private
an e-tailer where the manufacturer sells products M through
labels, e-tailers’ private label introduction, as a relatively novel
the e-tailer and the e-tailer has its own private label products E
phenomenon in practice, has not drawn enough attention from
which will compete with M in the downstream market. For the
academia. The main difference between offline and online retail-
remainder of the study, we use the pronoun “he” to represent the
ers is the sales modes. The former one is mainly based on the
manufacturer and “she” to represent the e-tailer. The manufac-
traditional reselling mode whereas the latter one can be based on
turer can choose one of two sales modes (the superscripts A and
either reselling or agency selling.
R represent these two modes, respectively):
The most relevant paper to ours by Ryan, Sun, and Zhao
Agency selling (A). The e-tailer acts as a two-sided platform
(2012) considered when the manufacturer currently sells prod-
that connects consumers and the manufacturer. The manufacturer
ucts through its own website, whether the e-tailer should offer
sells products based on the e-tailer and shares a certain proportion
the agency selling to him and produce private label products to
of profits with her. The e-tailer also sells her private label products
compete with him. Unlike our paper, they focused on the e-tailer’s
to consumers.
strategies and ignored the reselling mode. However, we research
Reselling (R). The e-tailer, acting as a traditional retailer, buys
the manufacturer’s choice between agency selling and reselling
the products from the manufacturer and sells both M and E to
when facing the e-tailer’s private label products.
end consumers.
Another important element of our study is the supply chain’s
Fig. 1 shows the structures of two sales modes and the se-
environmental sustainability. The issues related to environment
quence of events is illustrated in Fig. 2. At the first stage, the
and green production technology have been increasingly em-
manufacturer chooses the sales mode between agency selling
phasized by governments and environmental groups, and thus
and reselling. If he adopts the agency selling, then the manu-
many scholars in the operation management field have conducted
facturer and the e-tailer decide the sales quantities qm and qe
the studies considering not only firms’ profit maximization but
simultaneously. According to the agency selling agreement, the
also the environmental sustainability. Some papers investigated
manufacturer pays the percentage fee r to the e-tailer when his
the environmental policy tools that can induce a green supply
profits are obtained. In reality, the percentage fee is a long-term
chain. Such tools include environmental taxes (Krass, Nedorezov,
decision and cannot be modified easily. Therefore, we assume that
& Ovchinnikov, 2013; Turken, Carrillo, & Verter, 2020), subsidies
the percentage fee is exogenous, which is consistent with the pre-
(Bian & Zhao, 2020; Xiao, Gaimon, Subramanian, & Biehl, 2019),
vious literature (Liu et al., 2020; Wei et al., 2020). On the opposite,
cap-and-trade mechanisms (Barrieu & Fehr, 2014; Kroes, Subra-
if the manufacturer adopts the reselling mode, he sets the whole-
manian, & Subramanyam, 2012) and so on. Other papers, more
sale price w. Then the e-tailer decides the order quantities (also
closely related to our paper, focused on the environmental perfor-
the final sales quantities) qm and E’s sales quantities qe . Following
mance of different supply chain structures. For example, Niu and
previous studies (Liu et al., 2020; Niu & Mu, 2020; Yan et al.,
Mu (2020) compared two outsourcing structures’ environmental
2018), we assume that the manufacturer and the e-tailer engage
performance and concluded the simultaneous improvement of the
in a Cournot competition in the end market. This assumption is
OEM’s profits, the service provider’s profits and the environmental
based on two reasons: First, two firms compete in their production
performance is achievable when the OEM outsources the bundled
quantities rather than their prices. The Cournot model has been
functions of procurement and logistics. Also, Niu, Xie, Mu, and Ji
(2020) studied how the overseas sourcing and domestic sourcing
affect the supply chain sustainability and identified a “win-win”
situation for both the economic and environmental sustainability.
Örsdemir, Kemahlıoğlu-Ziya, and Parlaktürk (2014) modeled the
environmental impacts of remanufacturing supply chain with and
without third-party independent remanufacturers (IR) and demon-
strated that the IR’s entry can reduce the environmental impacts.
In spite of the common interest in environmental sustainability,
previous works mainly examined the traditional offline supply
chain. However, the large-scale expansion of electronic commerce
increases product sales and meanwhile brings more burden to the
environment. Therefore, different from others, our work compares
the environmental performance of online retailing under agency
selling and reselling, and further concentrates on the coordination
of the economic and environmental sustainability via two sales
modes.
We summarize the most relevant literature in Table 2. Fig. 1. Sales mode structures.

603
X. Zhang and W. Hou European Journal of Operational Research 296 (2022) 601–614

Fig. 2. Sequence of events.

demonstrated to be equivalent to a setting where firms first decide Table 3

Notations and definitions.
production quantities and then set the prices. It is the appropriate
model when production quantities are more difficult than prices Notation Definition
for firms to adjust, which is the case for most manufacturers (Hu, qm , qe Sales quantities of M and E
Mai, & Pekeč, 2020; Niu, Li, Zhang, Cheng, & Tan, 2019). Second, a Market size of the products
two firms decide their production quantities simultaneously. Al- θ Brand advantage of M
though the manufacturer’s and the e-tailer’s decision timing can pm , pe Prices of M and E
b Competition intensity degree
be slightly different, during most of the product cycle, M and E
r Percentage fee
coexist in the market, thus the Cournot model is suitable. The π m, π e Profits of the manufacturer and the e-tailer
inverse demand functions of M and E are as follows. A, R Superscripts indicating agency selling and reselling
w Wholesale price of M
pm = a + θ − qm − bqe (1) ep Effective prices
e Unit pollution per quantity of E
γ Environmental advantage of production of M
pe = a − qe − bqm (2) EI Environmental impact index
tm , te Production costs of the manufacturer and the e-tailer
a represents the market size of the products. The manufacturer cm , ce Sales costs of the manufacturer and the e-tailer
is skilled in product design and production and thus product M
owns high brand loyalty. The private labels, however, are thought
of as acceptable alternatives rather than desirable brands to con- Under reselling, the e-tailer purchases M at the wholesale price
sumers according to Gielens et al. (2021) and Commuri (2009). w and sells both M and E to consumers. The profit functions are
Also, Wang, Torelli, and Lalwani (2020) found that though the then:
private label’s quality is almost equal to the national brand’s,
consumers prefer the national brand and are willing to pay a πmR = wqm (5)
higher price. Therefore, similar to Niu et al. (2019) and Hu et al.
(2020), we assume the market potential of M is a + θ , where πeR = ( pm − w )qm + pe qe (6)
θ captures M’s brand advantage over E. One can also see that
Without loss of generality, here we normalize the production
θ measures the price premium of M. We relax this assumption
and sales costs of the manufacturer and the e-tailer to be zero. In
and discuss another type of brand advantage model (Section 6.4)
the extension, we relax this assumption and analyze the situations
and E’s brand advantage (Section 6.5) in the extension. Here we
with positive costs.
require 0 < θ < min[ a(b2(−b−br ) a(2−b−b )2
1+r )
, b
] to rule out the uninter-
esting cases where M’s advantage is too large that the e-tailer no 4. Analysis and results
longer sells her private label products. This condition also ensures
market-clearing prices under two sales modes to be positive. Also, In this section, we solve the equilibrium outcomes and compare
we use b to measure the product competition intensity degree. If the results under agency selling and reselling. Then we analyze the
b = 0, the two products are independent; if b = 1, the two prod- manufacturer’s and the e-tailer’s preferences over the sales modes.
ucts are perfectly substituted. Table 3 summarizes the notations
and definitions in our model. Lemma 1. Under agency selling, the equilibrium outcomes are
2
2−b)+2θ a (2−b−br )−b(1+r )θ A = (1−r ) (a (2−b)+2θ ) , and
Then we consider the manufacturer’s and the e-tailer’s profits qAm = a4(−b A
2 (1+r ) , qe = 4−b2 (1+r )
, πm 2
(4−b2 (1+r ))

(a2 ( (4 − 4b + b3 r )(1 + r ) + b2 (1 − r − r2 )) + a(8r − 4b(1 + r ) + b3 r (1 + r ) + 2b2 (1 − r2 ))θ + (4r + b2 (1 − r2 ))θ 2 )

πeA = .
(4 − b2 (1 + r ))2

under two sales modes. Under agency selling, the manufacturer Lemma 2. Under reselling, the equilibrium outcomes are
2 )−bθ 2
decides his sales quantities and pays the percentage fee to the a−ab+θ
, qRe = a(2−b−b R = (a−ab+θ ) ,
− ab + θ ), πm
2 (a
1
qRm = 4−4b2 4−4b2
, w = 8(1−b2 )
e-tailer. Thus, the e-tailer generates her profits from private label 2 (5−2b−3b2 )+2a (1−b)θ +θ 2
product sales and the percentage fee. The profit functions are and πeR = a
16(1−b2 )
.
given as:
4.1. Comparison of sales quantities
πmA = (1 − r ) pm qm (3)
First, we compare the sales quantities of M and E under each
πeA = r pm qm + pe qe (4) sales mode.

604
X. Zhang and W. Hou European Journal of Operational Research 296 (2022) 601–614

Lemma 3. (a) Under agency selling, the quantity of M is always b2

4−b2
, a large proportion of increased incomes are shared with the
higher than that of E (i.e., qAm > qAe ). (b) Under reselling, the quantity ∂ epAm ∂ epRm
of M is higher than that of E (i.e., qRm > qRe ) when θ > a(1 − b). e-tailer under agency selling, thus ∂θ < ∂θ .

Lemma 3 illustrates that under agency selling, the manufac- Lemma 6. M’s effective price is higher under agency selling
b2
turer always sets higher sales quantities than his competitor. Such than that under reselling (i.e., epAm > epRm ) when r < 2−b 2 or
b2 2b+b2 −b3 −2ab−ab2 +ab3 +4ar−2abr−ab2 r+ab3 r
behavior is understandable because M has the brand advantage
2−b2
<r< 4−2b−b2 +b3
and θ < b2 −4r+b2 r
.
that brings a larger market. However, under reselling mode, the
right to decide M’s quantities shifts to the e-tailer and at this Lemma 6 presents that the manufacturer can gain more from
time, she decides both M and E’s quantities. On one hand, M has unit sales of M under agency selling when the percentage fee
its brand advantage which can bring more market potential, so the is low, which is understandable. When the percentage fee is
e-tailer will sell more M if its market potential relative to E, repre- moderate, the comparison of the effective prices under two sales
sented by θa , is enough large; on the other hand, considering that modes depends on the brand advantage. As shown in Lemma 5,
the e-tailer has to pay the wholesale price to the manufacturer, though the effective price under either sales mode increases in θ ,
she will sell more M if the wholesale price is low. According to the increase rate is relatively low under agency selling when r is
b2 2b+b2 −b3
2 < r < 4−2b−b2 +b3 , if θ is high, epm < epm ,
large. Hence, given 2−b A R
Lemma 2, the wholesale price decreases in the competition degree
b (i.e., ∂∂wb < 0), which means that when two products are under otherwise epAm > epRm .
intense competition, the manufacturer would set a low wholesale
price. Therefore, if b is large, the e-tailer will order more M from 4.3. Comparison of profits
the manufacturer.

Lemma 4. (a) Under both agency selling and reselling, M’s mar- Proposition 1. The manufacturer prefers agency selling over reselling
∂(
qA
m ) ∂(
qR
m ) (i.e., πm
A > π R ) if r < r or r < r < r and θ < θˆ .
m 1 1 2
qA A
m +qe qR R
m +qe
ket share increases in θ (i.e., ∂θ > 0, ∂θ > 0). (b)
All proofs and values of omitted expressions are provided
M’s market share is larger under agency selling than that un-
b2 b2
in the Appendix. According to Proposition 1, the manufacturer’s
der reselling when r < 2−b 2 and θ < θ1 or r > 2−b2 . Note that preference over sales modes depends on the percentage fee and
√
θ1 = a(2−2b(1−r )−b (2+r )2)b+(1a−r4) −4b (2+r )+b (8+r ) .
2 2 4 2
the brand advantage. When the percentage fee is low, the man-
ufacturer prefers agency selling, where he can directly sell the
Lemma 4(a) demonstrates that a larger brand advantage brings products to consumers and keep most profits. When the percent-
the manufacturer more market share under both sales modes, age fee is high, the manufacturer chooses the reselling mode to
which is consistent with intuitions. Then Lemma 4(b) shows that avoid the considerate profit sharing. When the percentage fee is
M gains a larger market share under agency selling when the per- moderate, the manufacturer should take his brand advantage into
centage fee is large or the brand advantage is low. Under agency consideration. As mentioned in Lemma 6, when the brand advan-
selling, the manufacturer has to share his profits with the e-tailer. tage is low, M’s effective price is higher under agency selling than
With a large percentage fee, he will increase M’s sales quantities to that under reselling. Thus, when r1 < r < r2 and θ < θˆ , the man-
∂ qA ufacturer prefers agency selling. On the contrary, when r1 < r < r2
maintain his profits (i.e., ∂ rm > 0); on the other side, because the
e-tailer can gain a large proportion of profits from the manufac- and θ > θˆ , the manufacturer prefers reselling. These findings can
turer, she is willing to reduce E’s quantities to keep the prices rel- be supported by empirical evidence. On Amazon, products with
∂ qA high brand advantages are usually sold under reselling, whereas
atively high (i.e., ∂ re < 0). Hence, M occupies a larger market share
other long-tail and niche products are sold under agency sell-
under agency selling if r is large. Under reselling mode, the e-tailer
ing (Jiang, Jerath, & Srinivasan, 2011). In addition, recalling the
has the right to decide M’s sales quantities. As shown in Lemma 3,
statistics on the percentage of sales from private labels, agency
when the brand advantage is low, the e-tailer has no incentive
selling and reselling in Table 1, more sales are generated through
to order large quantities of M. Therefore, M occupies less market
agency selling if the private labels are well received, indicating the
share under reselling than under agency selling when θ is low.
relatively low manufacturers’ brand advantage.
Next, we discuss the e-tailer’s preference over sales modes.
4.2. Comparison of prices
Proposition 2. The e-tailer prefers agency selling over reselling (i.e.,
We first investigate the manufacturer’s incomes from unit sales πeA > πeR ) if r3 < r < r4 and θ > θ˜ or r > r4 .
of M, which we refer to as the effective price of M, represented
For the e-tailer, she can gain the percentage fee under agency
by ep. Under agency selling, M’s effective price is (1 − r ) pAm , while
selling, while has the right to decide M’s sales quantities under
under reselling, that is the wholesale price w.
reselling. If r is high, she prefers agency selling because of the
Lemma 5. (a) The effective prices of M under two sales modes both promising profit sharing. However, if r is low, under agency sell-
∂ epAm ∂ epRm ing, the e-tailer cannot gain much from the manufacturer, which
increase in θ (i.e., ∂θ > 0, ∂θ > 0), and the increase rate under
∂ epA
makes reselling more profitable for her. When the percentage fee
∂ ( ∂θm ) is moderate, given a large brand advantage, the e-tailer would give
agency selling reduces in r (i.e., ∂r < 0). (b) The effective price
under agency selling increases more rapidly than that under reselling up the right and adopt agency selling. The reason behind is that if
∂ epAm ∂ epRm b2 θ is large, M will be more profitable and thus under reselling, the
(i.e., ∂θ > ∂θ ) if r < 4−b2 . e-tailer has to order a lot from the manufacturer. Conversely, if θ
According to Lemma 5(a), if M has a larger brand advantage, no is low, holding the decision right, the e-tailer can set low order
matter which sales mode the manufacturer adopts, the effective quantities of M and thus sell more own products E to consumers
∂ qR ∂ qR
price is always higher. In other words, a larger brand advantage ( ∂θm > 0, ∂θe < 0). Therefore, considering expanding sales of E,
can increase the manufacturer’s incomes from unit M under both a high θ makes the decision right less attractive to the e-tailer,
sales modes. Besides, under agency selling, as r increases, more which inspires her to prefer agency selling.
increased incomes go to the e-tailer and thus to the manufacturer, Intuitively, when the percentage fee is relatively low or the
the increase rate reduces. Lemma 5(b) implies that if r exceeds brand advantage is relatively low, the manufacturer prefers

605
X. Zhang and W. Hou
Fig. 3. The “win-win” zone under the agency selling.
agency selling while the e-tailer prefers reselling. However,
Proposition 3 indicates that there exists a feasible region where
the manufacturer and the e-tailer can achieve incentive alignment
under agency selling. To make it observable, we perform numerical
analysis setting the parameters as b = 0.5 and a = 10 in Fig. 3.
Proposition 3. Both the manufacturer and the e-tailer prefer agency
selling to reselling if one of the following conditions holds: (a)
r3 < r < r1 and θ > θ˜ ; (b) r1 < r < r4 and θ˜ < θ < θˆ ; (c) r4 < r < r2
and θ < θˆ .
We refer to the regions where both firms prefer one specific
sales mode as “win-win” zones under that mode. Proposition 3 in-
dicates that there exists a “win-win” zone under agency selling.
From Fig. 3, we can clearly see that when the percentage fee
and the brand advantage are moderate, the manufacturer and the
e-tailer both benefit from the agency selling. Besides, the manu-
facturer and the e-tailer would not prefer reselling simultaneously
and thus there is no “win-win” zone under reselling. Note that,
we use the symbol “->” to indicate the preference. For example,
“M->A” means that the manufacturer prefers agency selling.
This may explain why agency selling has been embraced by
many e-tailers and rapidly developed into a significant sales mode.
On Amazon, agency selling has already contributed above half
of paid units in 2020 (statista, 2020c). Also, though JD.com was
operated as a reselling platform firstly, agency selling now has
become as important as the reselling mode (Yan et al., 2019).
5. Environmental impact of two sales modes
In addition to the traditional offline sales, e-commerce has
already become a main channel for many manufacturers. In 2019,
online retail sales surpassed $3.5 trillion, accounting for 14.1%
of all retail sales worldwide and this figure is expected to reach
22% in 2023 (statista, 2020b). Online retailing surely provides
manufacturers with more opportunities to increase sales, however,
it aggravates the environmental burden due to the expansion of
production. In Section 4, we compare the two sales modes from
the perspective of economic sustainability, and in this section, we
analyze the environmental sustainability.
606
European Journal of Operational Research 296 (2022) 601–614
Following previous studies (Krass et al., 2013; Niu et al., 2020a,
2020b), we adopt the index of environmental impact (EI) to
measure the environmental performance of agency selling and
reselling mode.
E IA = γ eqAm + eqAe (7)
E IR = γ eqRm + eqRe (8)
We use the parameter e to represent unit pollution per unit
production of E. Compared to the e-tailer who is skilled at on-
line sales, the manufacturer often owns more professional and
advanced production technology and has more experience in
clean production (Niu & Mu, 2020). We relax this assumption in
the extension (Section 6.3). Here we assume each M only causes
pollution of γ e, where 0 < γ < 1. γ represents the environmental
advantages of M and a higher γ implies that the production of
M causes almost equal pollution to E, i.e., lower advantages. We
compare the environmental performance under agency selling and
reselling in Proposition 4.
Proposition 4. Agency selling is more sustainable than reselling
mode (i.e., E IA < E IR ) if one of the following conditions occurs: (a)
b2 b2 b2
r ≤ 2−b 2 , γ < γ2 and θ < θ2 ; (b) r > 2−b2 and γ < γ1 ; (c) r > 2−b2 ,
γ1 < γ < γ2 and θ < θ2 .
To make Proposition 4 more straightforward, we assume
that b = 0.5, indicating the moderate competition intensity. This
assumption does not influence the structure of our results.
Lemma 7. When b = 0.5, agency selling is more environmentally
sustainable than reselling (i.e., E IA < E IR ) if one of the following
1+10γ a (3+r (19−2γ )−42γ )
conditions occurs: (a) γ ≤ 14
1
, r < 7−2γ and θ < 6+36γ −r (26−4γ ) ;
42γ −3 1+10γ a (3+r (19−2γ )−42γ )
(b) 1
14 <γ < 1
2 , 19−2γ <r< 7−2γ and θ < 6+36γ −r (26−4γ )
; (c)
1+10γ
γ < 12 and r > 7−2γ .
Fig. 4 presents three interesting results: First, if r is large,
agency selling is more sustainable, otherwise reselling is more
sustainable; Second, a lower brand advantage makes agency selling
outperform in environmental performance; Third, by comparing
Fig. 4(a)–(c), we find that with a higher γ , reselling mode is more
likely to be environmentally friendly, and if γ is very high (i.e.,
γ > 12 ), reselling mode is always greener. To understand these re-
sults, we first identify two factors that influence the environmental
performance: total sales quantities and M’s market share. Total
sales quantities mean that under either agency selling or reselling,
the whole sales quantities of M and E. Obviously, larger total
sales quantities would deteriorate the environmental performance.
Besides, M’s market share also affects the sales modes’ EI because
M is more environmentally friendly than E, hence higher market
share of M can reduce the pollution. Then we analyze how these
two factors vary under agency selling and reselling.
Lemma 8. The total sales quantities under agency selling are always
higher than those under reselling (i.e., qAm + qAe > qRm + qRe ).
With a high γ , the environmental advantage of M is not
large, hence the total quantities become a critical factor in the
sales modes’ environmental performance. Therefore, as shown in
Fig. 4(c), reselling mode is always an environmentally-friendly
option. If γ is relatively moderate or low, M’s market share plays
a vital role. According to Lemma 4(b), M’s market share is larger
under agency selling when θ is low or r is high, so with such
conditions, agency selling induces smaller environmental impacts
(see Fig. 4(a) and (b)).
X. Zhang and W. Hou European Journal of Operational Research 296 (2022) 601–614

Fig. 4. Comparison of environmental impacts (a = 10, e = 1, b = 0.5).

Fig. 5. The “win-win-win” zone under agency selling (a = 10, e = 1, b = 0.5).

5.1. Win-win-win situation for the manufacturer, the e-tailer and the the manufacturer’s production is enough green, the “win-win”
environment situation for two firms is definitely the “win-win-win” situation.

Combining Proposition 3 and Proposition 4, we can find there 6. Extensions

exists a “win-win-win” zone under agency selling which coor-
dinates the economic and environmental sustainability. In other 6.1. Positive production costs
words, the manufacturer’s profits, the e-tailer’s profits and the en-
vironment performance can be improved simultaneously. Though In this subsection, we take production costs into consideration.
it is hard to compute the exact expressions of the zone due to the We use tm and te to represent the manufacturer’s and the e-tailer’s
sophisticated calculation, we numerically show it in Fig. 5. production costs for unit sales and their profit functions under
According to Fig. 5(a), when M’s production technology is two sales modes are as follows.
far better than E’s, the economic sustainability zone totally co-
ordinates the environmental sustainability. However, as shown
πmA = (1 − r ) pm qm − tm qm (9)
in Fig. 5(b), when M’s production technology advantage is not
very large, only part of the economic sustainability zone coor- πeA = r pm qm + ( pe − te )qe (10)
dinates the environmental sustainability because with a high γ ,
reselling mode is more likely to be the environmentally-friendly
choice. This finding provides valuable management insights for
πmR = (w − tm )qRm (11)
the governments who should implement policies to encourage the
   
manufacturer to improve his clean production technology. Once πeR = pRm − w qm + pRe − te qe (12)

607
X. Zhang and W. Hou
Fig. 6. The impact of production costs on the manufacturer’s preference (a = 10,
θ = 3,b = 0.5).
Fig. 7. The impact of production costs on the e-tailer’s preference (a = 10, θ = 3,b =
0.5).
Compared to the e-tailer, the manufacturer owns more profes-
sional production technology and thus he can produce products
with fewer costs. However, the e-tailer with less experience in
production incurs higher production costs. We set tm < te to
characterize the asymmetry in production costs. To simplify our
model, we normalize tm to zero and let t denote the e-tailer’s
costs of unit sales, which also represents the production cost
difference between the manufacturer and the e-tailer. Though we
can achieve the closed-form equilibrium outcomes as shown in
the Appendix, the additional analysis becomes intractable. As a
result, we conduct the numerical analysis to derive the findings.
We first focus on the impacts of positive production costs.
From Fig. 6, we observe the manufacturer is more likely to prefer
reselling when the e-tailer’s production costs are high. Under re-
selling, if the advantage of the manufacturer’s production costs is
large, the e-tailer will order more products from the manufacturer
and reduce the production quantities of private label products,
which makes reselling more attractive to the manufacturer. On the
opposite, with large production costs, the e-tailer prefers agency
selling as illustrated in Fig. 7. For the e-tailer, even with the
decision right of M’s sales quantities under reselling, she cannot
set a low qm due to the disadvantage of E’s production costs and
thus she prefers agency selling in order to gain the promising
percentage fee.
From Fig. 8, we find that when the e-tailer’s production costs
are low, agency selling is beneficial for the environment. Similar
608
European Journal of Operational Research 296 (2022) 601–614
Fig. 8. The impact of production costs on environmental performance (a = 10, b =
0.5, γ = 0.8, θ = 3, e = 1).
Fig. 9. The “win-win-win” zone under agency selling (a = 10, b = 0.5, γ = 0.2, e =
1).
to the main model, total sales quantities under agency selling
are always higher than those under reselling. However, if E’s
production costs are lower, the e-tailer will produce more E and
order less M under reselling. Because M is more environmentally
friendly than E, a low t makes agency selling outperform.
Then we concentrate on the main results in the basic model,
which still hold with positive production costs. First, when the
percentage fee and the brand advantage are low, the manufac-
turer prefers agency selling, while the e-tailer prefers reselling.
Second, when the percentage fee and the brand advantage are
moderate, both firms prefer agency selling. Third, there exists a
“win-win-win” situation where agency selling can improve the
manufacturer’s and the e-tailer’s profits as well as the environ-
mental performance. Fig. 9 intuitively shows the above findings.
6.2. Positive sales costs
The previous analysis proves that positive production costs do
not influence our results in the main model. However, when it
comes to online sales costs, there exist some additional interesting
X. Zhang and W. Hou European Journal of Operational Research 296 (2022) 601–614

findings. In this subsection, we relax the zero sales cost assump-

tion and explore how the sales costs influence our results. We as-
sume that the manufacturer’s and the e-tailer’s sales costs for unit
sales are cm and ce . In reality, akin to the e-tailer’s disadvantage
in production, the manufacturer is often weak in sales efficiency
(Yan et al., 2018) for the following reasons. First, this inefficiency
may stem from the lack of sales experience and information about
customer preferences (Arya, Mittendorf, & Sappington, 2007; Li,
Gilbert, & Lai, 2013). Traditionally, the manufacturer produces
products and gives the sales work to retailers. Compared to the e-
tailer who is actually a professional e-commerce platform operator,
online sales, consisting of online store operation, online consumer
services and online marketing, are obviously not the manufac-
turer’s strength. Second, the manufacturer lacks the economics of
scale (Li, Gilbert, & Lai, 2015). The e-tailer serves many manufac-
turers’ online sales and thus can easily achieve economies of scale.
Take logistics services for example. In 2019, Amazon Logistics
delivered 1.9 billion packages in the US and achieved over $53.7 Fig. 10. The impact of sales costs on the manufacturer’s preference (a = 10, b = 0.5,
θ = 5).
billion in revenue worldwide (Statista, 2021). JD.com built its
large-scale and efficient logistics network, which reduced the
logistics costs (Niu, Xie, Chen, & Xu, 2020). Therefore, we assume
cm > ce and the profit functions are as follows.
πmA = (1 − r ) pm qm − cm qm (13 ) (13)

πeA = r pm qm + ( pe − ce )qe (14)

πmR = wqRm (15)

   
πeR = pRm − w − ce qm + pRe − ce qe (16)
Similar to the production costs, we normalize ce to zero and use
c to describe the sales cost difference between the two firms. This
assumption is common in prior papers (Arya et al., 2007; Li et al.,
2013). We require (1 − r )(a + θ − b(1+
2a
r)
) < c < (1 − r )(a + θ − ab
2 )
to ensure both the manufacturer and the e-tailer produce their
products. Lemma 9 presents the equilibrium outcomes under
Fig. 11. The impact of the brand advantage on the manufacturer’s preference with
agency selling. c = 0.5.

Lemma 9. Under agency selling, the equilibrium outcomes are

)(1−r )−2(c−(1−r )θ ) )+b(1+r )(c−(1−r )θ )
qAm = a(2−b
(4−b2 (1+r ))(1−r )
, qAe = a(1−r )(2(−b−br
4−b2 (1+r ) )(1−r )
,
Observation 1. When the percentage fee is moderate, given low sales
(a(2−b)(1−r )−2(c−(1−r )θ ))2
πmA = 2 , and costs, the manufacturer prefers reselling when θ is high. However,
(1−r )(4−b2 (1+r ))

(a(2 −b(1 −r+ br )) + b(c− (1 −r )θ ))(a(1 −r )(2 −b−br ) + b(1 + r )(c− (1 −r )θ )) + 1−r
r
(a(2−b)(1−r ) −2(c− (1−r )θ ))(a(2−b)(1−r ) −b2 c(1+r ) +2(c+ θ −rθ ))
πeA = .
(1 −r )(4 −b2 (1 + r ))2

Under reselling, both M and E are sold by the e-tailer, and
when assuming her sales costs are zero, the equilibrium outcomes
are the same as Lemma 2. Because the analysis with sales costs
becomes extremely complicated and intractable, we conduct
numerical analysis to derive the findings. First, we examine the
manufacturer’s preference over the sales modes.
As Fig. 10 shows, the manufacturer prefers agency selling when
the percentage fee is relatively low, which is consistent with the
main model. When the percentage fee is moderate, we find that
the manufacturer prefers agency selling if the sales costs are low,
otherwise he prefers reselling mode. This observation is intuitive
because under agency selling, the manufacturer is in charge of
selling M and has to pay for the sales costs. Then we explore the
influence of the brand advantage on the manufacturer’s preference.
In Figs. 11 and 12, when the percentage fee is low, the man-
ufacturer prefers agency selling, and when the percentage fee
is large, he prefers reselling. The most interesting observation
happens when the percentage fee is moderate.
given high sales costs, the manufacturer prefers agency selling when
θ is high.
With a moderate r, the manufacturer’s choice depends on the
brand advantage. The reason behind Observation 1 is as follows.
No matter what values the sales costs are, there exists a threshold
rˆ. Once r > rˆ, the manufacturer begins to take the brand advantage
into consideration, otherwise, he always adopts the agency selling.
When the sales costs are high, the manufacturer is reluctant to
pay the costs, so the threshold rˆ is relatively low. According to
∂ epAm
∂θ∂( )
Lemma 5, due to ∂r < 0, when r is low, M’s effective price
under agency selling increases rapidly in θ . Thus, the manufacturer
adopts the agency selling if θ is high. On the contrary, when the
sales costs are low, the manufacturer is willing to adopt agency
selling, so the threshold rˆ is very high. Hence, at the time that
the brand advantage should be considered, the percentage fee is
so high that M’s effective price increases very slowly in θ under
agency selling. Therefore, given low sales costs, the manufacturer

609
X. Zhang and W. Hou
Fig. 12. The impact of the brand advantage on the manufacturer’s preference with
c = 2.
Fig. 13. The impact of the brand advantage on the e-tailer’s preference (a = 10, b =
0.5, c = 2).
prefers the reselling mode when θ is high. Next, we discuss the
e-tailer’s preference.
From Fig. 13, we have two findings that both prove our main
model’s results still hold. First, the e-tailer prefers agency selling
when the percentage fee is high, while she prefers reselling when
the fee is low. Second, when the percentage fee is moderate, her
Fig. 14. The manufacturer’s and the e-tailer’s preferences over sales modes (a = 10, b = 0.5, θ = 3).
610
European Journal of Operational Research 296 (2022) 601–614
preference hinges on the brand advantage. If θ is large, the agency
selling is more profitable for the e-tailer. The explanation is the
same as that of Proposition 2.
In the main model, we conclude that the manufacturer and
the e-tailer can achieve incentive alignment under agency selling
when the percentage fee and the brand advantage are moderate.
Next, we investigate how the sales costs affect this result by
numerical analysis. First, we focus on the percentage fee.
Observation 2. When the percentage fee is moderate, with low
sales costs, the manufacturer and the e-tailer can both prefer agency
selling; with high sales costs, they can both prefer agency selling or
reselling depending on the brand advantage.
Fig. 14 illustrates that the manufacturer and the e-tailer have
the same preferences when the percentage fee is moderate, but
unlike the main model, they can both prefer agency selling or
reselling depending on the sales costs. In Fig. 14(a), when the
sales costs are low, two firms agree on agency selling as the
zero sales cost scenario. However, in Fig. 14(b), with high sales
costs, the manufacturer turns to choose the reselling mode at
a low percentage fee (r=0.35) in accordance with the e-tailer’s
preference. Besides, the brand advantage also influences two firms’
preferences. According to Fig. 15(a), we observe when the sales
costs are low, the preferences of the manufacturer and the e-tailer
are consistent with the main model, that is when the brand
advantage is moderate, they both benefit from the agency selling.
However, when it comes to high sales costs in Fig. 15(b), they
can engage in incentive alignment under agency selling (if θ is
high) and reselling (if θ is low). Note that, the e-tailer owns lower
sales costs and we assume ce =0 in this model. Thus, when the
manufacturer’s sales costs are high, he is more likely to accept the
reselling mode and lets the e-tailer be in charge of sales, which
makes reselling become a possible “win-win” outcome.
In summary, in the basic model, two firms can achieve incen-
tive alignment only under agency selling. However, when the sales
costs of the manufacturer and the e-tailer are asymmetric, they can
achieve that under agency selling or reselling depending on the
sales costs, percentage fee and brand advantage. In other words,
agency selling is more attractive when the manufacturer’s sales
costs are low. This result may explain that many e-tailers did not
provide agency selling for manufacturers until the online retailing
became mature. For example, JD.com initially offered only reselling
mode and introduced agency selling when the platform was well
developed (Yan et al., 2019). Also, some e-tailers such as Amazon
now offer a range of tools and services to help agency-selling
X. Zhang and W. Hou European Journal of Operational Research 296 (2022) 601–614

Fig. 15. The “win-win” zones with sales costs (a = 10, b = 0.5).

Fig. 16. The “win-win-win” zones with sales costs (a = 10, b = 0.5, e = 1).

manufacturers reduce sales costs (Amazon, 2021) because based
on our findings, manufacturers and e-tailers are more likely to
prefer agency selling simultaneously when the sales costs are low.
Recall that when there is no sales cost, the supply chain can
reach the economic and the environmental sustainability under
the agency selling. Now we ask the following question: how the
sales costs influence the environmental performance? We analyze
this question and find the “win-win-win” zones with low sales
costs (c=0.5) and high sales costs (c=2). Fig. 16 illustrates the
results and we gain the following observations.

611
X. Zhang and W. Hou
Fig. 17. The manufacturer’s and the e-tailer’s preferences when θ < 0 (a = 10, b =
0.5).
Observation 3. The “win-win-win” zone with low sales costs, similar
to the zero sales cost scenario, only exists under agency selling. Specif-
ically, if γ is low, the “win-win” zone is the “win-win-win” zone; if
γ is moderate, the “win-win” zone is partly the “win-win-win” zone;
and if γ is high, there is no “win-win-win” zone.
Observation 4. The “win-win-win” zone with high sales costs exists
under both agency selling and reselling. Specifically, if γ is low, the
“win-win” zones under agency selling and reselling can both become
“win-win-win” zones; if γ is moderate or large, the “win-win” zone
under reselling is the “win-win-win” zone.
Because when the sales costs are low, the results and their
explanations are similar to our main model, here we focus on
the high sales costs scenario. As before, two factors, total sales
quantities and M’s market share, influence the environmental
performance of two sales modes. Given a low γ , agency selling is
more environmentally friendly than reselling if the percentage fee
is moderate and the brand advantage is high because under these
conditions, M has a relatively large market share under agency
selling. In addition, as γ increases, the total sales quantities, which
are always higher under agency selling, exert more influence on
the environmental performance and thus the dominant range
of agency selling becomes smaller until it disappears. Therefore,
when γ is moderate or large, the “win-win-win” zone only exists
under reselling.
Fig. 18. “Win-win-win” zones when θ < 0 (a = 10, b = 0.5, e = 1).
612
European Journal of Operational Research 296 (2022) 601–614
6.3. Alternative environmental impacts of M and E
In the main model, we assume that M is more environmentally
friendly than E. In this subsection, we consider the opposite
situation that the e-tailer can achieve cleaner production. The
environmental index functions are identical to those in the main
model (i.e., Eqs. (7) and (8)) with γ > 1.
Proposition 5. Given γ > 1, agency selling is more en-
vironmentally friendly than reselling only when b > 0.89,
 
−4+5b2 3 b3 r
r< b2
, γ > −24b−5+4b2br−2
+b2 r
and θ >θ where θ=
a (−1+b)(b3 (1+r )+b2 (−2+r (−2+γ )−3γ )−4b(r−γ )+4γ )
−4br+3b3 (1+r )+4γ +b2 (−7+r )γ
.
Proposition 5 illustrates that agency selling achieves the en-
vironmental sustainability under very strict conditions if the
production of M leads to higher pollution. Akin to the basic model,
the environmental performance is associated with two factors:
total sales quantities and M’s market share. If γ is low, the impacts
of two products on the environment are similar so the former
factor, which is always higher under agency selling, plays a vital
role. Another parameter that influences the strength of the first
factor is b. With a lower b, the difference of total quantities under
two sales modes is higher, making that factor dominate. Further,
we consider M’s market share. When θ is high and r is low, M’s
market share is lower under agency selling. Therefore, agency sell-
ing is greener than reselling only when the former factor is very
weak (γ and b are both high) and the latter factor is very strong
(θ is high and r is low). Note that, though we can prove agency
selling can be the greener sales mode, the conditions require the
extremely intensive competition and large disadvantage of M’s
clean production, which are hard to achieve in practice. In other
words, if the e-tailer owns cleaner production technology, there is
a strong possibility that reselling is the greener sales mode.
6.4. Another type of brand advantage model
To verify the robustness of our findings, here we examine our
analysis with another typical type of brand advantage model. The
inverse demand functions are:
pm = aθ − qm − bqe (17)
pe = a − qe − bqm (18)
To capture M’s brand advantage and ensure the positive sales
2
quantities of M and E, we assume 1 < θ < min[ b+2br , 2−b
b
]. We de-
rive the equilibriums and show them in the Appendix. Because all
results are consistent with the main model, we omit the analysis
and confirm that our findings are robust.
X. Zhang and W. Hou
6.5. Consumers’ preference for the private label
In this extension, we study E’s brand advantage which may
stem from the credibility of the online sales platform. We use a + θ
to measure M’s market potential following the main model and
assume that consumers are willing to pay a higher price for E by
setting θ < 0. To ensure that the manufacturer and the e-tailer par-
ticipate in the production, θ > ab − a is required. Note that though
θ is negative here, it still captures M’s brand image. Specifically, a
higher θ means that consumers are more willing to pay for M. We
conduct the same analysis as the main model and prove that our
findings still establish. First, from Fig. 17, if r is low and θ is low,
the manufacturer prefers agency selling while the e-tailer prefers
reselling. In addition to the “win-win” zone where both firms
prefer agency selling as before, there also exists a “win-win” zone
where they prefer reselling. Second, when considering the environ-
mental performance, our results in the main model are also robust.
The “win-win” zone under agency selling is certainly the “win-
win-win” zone if γ is low (Fig. 18a) and it is partly the “win-win-
win” zone if γ is moderate (Fig. 18b). When γ is high, reselling is
always more environmentally friendly so that the “win-win” zone
under reselling is certainly the “win-win-win” zone (Fig. 18c).
7. Conclusion
This paper studies two common sales modes, agency sell-
ing and reselling. Under agency selling, the manufacturer sells
his products to consumers and shares profits with the e-tailer;
while under reselling, the e-tailer, as a traditional retailer, orders
products from the manufacturer and resells to consumers. We
investigate the manufacturer’s and the e-tailer’s preferences over
these two sales modes when the e-tailer owns her private label
products. We find that when the percentage fee is high, the
manufacturer prefers reselling, while the e-tailer prefers agency
selling. When the percentage fee is moderate, they both take
brand advantage into consideration. With a high brand advantage,
the manufacturer benefits more from reselling, however, the
e-tailer is more profitable under agency selling. Though their pref-
erences seem opposite, we prove that they can achieve incentive
alignment under agency selling when the percentage fee and the
brand advantage are moderate. Further, we compare two sales
modes’ environmental performance and identify two influence
factors, total sales quantities and manufacturer’s market share.
We find that under agency selling, the manufacturer, the e-tailer
and the environment can reach the “win-win-win” situation. In
the extension, we consider the asymmetric production and sales
costs of the manufacturer and the e-tailer. We confirm that the
main findings in our basic model are robust and conduct some
additional results. In particular, if the sales costs are high, the
“win-win-win” situation can be reached both under agency selling
and reselling. The above findings are insightful for manufacturers
who are developing online channels as well as e-tailers who are
designing the sales contracts for reselling and agency selling.
Besides, our findings, especially those referring to the environ-
mental performance, provide valuable managerial insights for the
governments. The details are as follows.
First, the manufacturer should consider not only the percentage
fee, but also his brand advantage over the e-tailer’s private label
when adopting one sales mode. If the percentage fee is moderate,
manufacturers with high brand advantages should adopt reselling.
This finding is consistent with the practice. On Amazon, products
that are expected to generate large sales are sold under reselling,
while other long-tail and niche products with low brand advan-
tages are sold through manufacturers under agency selling (Jiang
et al., 2011).
613
European Journal of Operational Research 296 (2022) 601–614
Second, the sales costs highly influence the manufacturer’s
preference and further change two firms’ incentive alignment. Our
finding implies that agency selling is more efficient if the sales
costs are relatively low. Considering that many e-tailers are now
rapidly developing agency selling, they should make efforts to
reduce manufacturers’ online sales costs, such as offering sound
supporting systems. This finding may also explain that some
e-tailers such as JD.com and Amazon offered only reselling mode
initially, and did not introduce agency selling until the online
retailing became relatively mature (Liu et al., 2020).
Third, if the manufacturer’s production technology is enough
environmentally friendly, the “win-win” situation for the manufac-
turer and the e-tailer certainly benefits the environment. Therefore,
the governments are suggested to make policies to encourage man-
ufacturers to improve production technology and reduce pollution.
There are several limitations in this study, which also offer
some future research openings. First, we analyze one manufacturer
and one e-tailer in our model. Further studies may be extended
to consider the competition and interaction between several
manufacturers or e-tailers. Second, compared to manufacturers,
e-tailers have more market information and history sales data,
which give them advantages in identifying the product potential.
Future research can explore the information sharing strategy when
the market demand is uncertain. Finally, in practice, e-tailers own
online promotion resources on their platforms, which can be used
to promote the private labels’ and manufacturers’ products. For
example, Amazon’s private label advertisements have appeared in
highly visible areas of the platform, like the top of search results
or even next to a competitor’s product page (Colabug, 2020). With
this in mind, the allocation of promotion resources and the sales
mode selection are worthy of further discussion.
Declaration of Competing Interest
None.
Acknowledgments
We thank the editors and anonymous reviewers for their in-
sightful and constructive comments. This work was supported by
the National Social Science Fund of China under Grant 15BGL074
and 16BGL079.
Supplementary materials
Supplementary material associated with this article can be
found, in the online version, at doi:10.1016/j.ejor.2021.04.009.
References
Abhishek, V., Jerath, K., & John Zhang, Z. (2015). Agency selling or reselling? Channel
structures in electronic retailing. Management Science, 62(8), 2259–2280. https:
//doi.org/10.1287/mnsc.2015.2230.
Amazon. (2021). Questions for the record for Amazon following the July 29, 2020,
Hearing of the Subcommittee on Antitrust, Commercial, and Administrative
Law, Committee on the Judiciary. Accessed February 28. https://docs.house.gov/
meetings/JU/JU05/20200729/110883/HHRG-116-JU05-20200729-QFR052.pdf.
Arya, A., Mittendorf, B., & Sappington, D. E. M. (2007). The bright side of supplier
encroachment.. Marketing Science, 26(5), 651–659. https://doi.org/10.1287/mksc.
1070.0280.
Barrieu, P., & Fehr, M. (2014). Market-consistent modeling for cap-and-trade
schemes and application to option pricing.. Operations Research, 62(2), 234–249.
https://doi.org/10.1287/opre.2013.1242.
Bauner, C., Jaenicke, E., Wang, E., & Wu, P.-. C. (2019). Couponing strategies in com-
petition between a national brand and a private label product.. Journal of Retail-
ing, 95(1), 57–66. https://doi.org/10.1016/j.jretai.2018.11.002.
Bian, J., & Zhao, X. (2020). Tax or subsidy? An analysis of environmental policies in
supply chains with retail competition. European Journal of Operational Research,
283(3), 901–914. https://doi.org/10.1016/j.ejor.2019.11.052.
Colabug. (2020). Amazon has quietly removed promotional spots that gave special
treatment to its own product.. Accessed October, 1. https://www.colabug.com/
2019/0403/5907420/.
X. Zhang and W. Hou
Commuri, S. (2009). The impact of counterfeiting on genuine-item consumers’
brand relationships.. Journal of Marketing, 73(3), 86–98. https://doi.org/10.1509/
jmkg.73.3.86.
eMarketer. (2020). Global ecommerce 2020. Accessed October 1. https://www.
emarketer.com/content/global- ecommerce- 2020.
Gielens, K., Ma, Y., Namin, A., Sethuraman, R., Smith, R. J., Bachtel, R. C., et al. (2021).
The future of private labels: towards a smart private label strategy.. Journal of
Retailing doi:. https://doi.org/10.1016/j.jretai.2020.10.007.
Hökelekli, G., Lamey, L., & Verboven, F. (2017). Private label line proliferation and
private label tier pricing: A new dimension of competition between private la-
bels and national brands.. Journal of Retailing and Consumer Services, 36, 39–52.
https://doi.org/10.1016/j.jretconser.2016.12.014.
Hu, B., Mai, Y., & Pekeč, S. (2020). Managing innovation spillover in outsourcing..
Production and Operations Management, 29(10), 2252–2267. https://doi.org/10.
1111/poms.13222.
Jiang, B., Jerath, K., & Srinivasan, K. (2011). Firm strategies in the “mid tail” of
platform-based retailing.. Marketing Science, 30(5), 757–775. https://doi.org/10.
1287/mksc.1110.0656.
Kogan.com. (2020). Annual Report 2019. Accessed October 1. https://www.
kogancorporate.com/.
Krass, D., Nedorezov, T., & Ovchinnikov, A. (2013). Environmental taxes and the
choice of green technology.. Production and Operations Management, 22(5),
1035–1055. https://doi.org/10.1111/poms.12023.
Kroes, J., Subramanian, R., & Subramanyam, R. (2012). Operational compliance
levers, environmental performance, and firm performance under cap and trade
regulation.. Manufacturing & Service Operations Management, 14(2), 186–201.
https://doi.org/10.1287/msom.1110.0357.
Li, Z., Gilbert, S. M., & Lai, G. (2013). Supplier encroachment under asymmetric in-
formation.. Management Science, 60(2), 449–462. https://doi.org/10.1287/mnsc.
2013.1780.
Li, Z., Gilbert, S. M., & Lai, G. (2015). Supplier encroachment as an enhancement or
a hindrance to nonlinear pricing.. Production and Operations Management, 24(1),
89–109. https://doi.org/10.1111/poms.12210.
Liu, W., Yan, X., Li, X., & Wei, W. (2020). The impacts of market size and data-driven
marketing on the sales mode selection in an Internet platform based supply
chain.. Transportation Research Part E: Logistics and Transportation Review, 136,
Article 101914. https://doi.org/10.1016/j.tre.2020.101914.
Mantin, B., Krishnan, H., & Dhar, T. (2014). The Strategic role of third-party market-
places in retailing.. Production and Operations Management, 23(11), 1937–1949.
https://doi.org/10.1111/poms.12203.
MarketplacePulse. (2020). Amazon private label brands. Accessed October 1. https:
//www.marketplacepulse.com/amazon- private- label- brands#search.
Nenycz-Thiel, M., Sharp, B., Dawes, J., & Romaniuk, J. (2010). Competition for mem-
ory retrieval between private label and national brands.. Journal of Business Re-
search, 63(11), 1142–1147. https://doi.org/10.1016/j.jbusres.2009.10.010.
Niu, B., Li, J., Zhang, J., Cheng, H. K., & Tan, Y. (2019). Strategic analysis of dual sourc-
ing and dual channel with an unreliable alternative supplier.. Production and
Operations Management, 28(3), 570–587. https://doi.org/10.1111/poms.12938.
Niu, B., & Mu, Z. (2020). Sustainable efforts, procurement outsourcing, and chan-
nel co-opetition in emerging markets.. Transportation Research Part E: Logistics
and Transportation Review, 138, Article 101960. https://doi.org/10.1016/j.tre.2020.
101960.
Niu, B., Xie, F., Chen, L., & Xu, X. (2020). Join logistics sharing alliance or not? Incen-
tive analysis of competing E-commerce firms with promised-delivery-time.. In-
ternational Journal of Production Economics, 224, Article 107553. https://doi.org/
10.1016/j.ijpe.2019.107553.
Niu, B., Xie, F., Mu, Z., & Ji, P. (2020). Multinational firms’ local sourcing strategies
considering unreliable supply and environmental sustainability.. Resources, Con-
servation and Recycling, 155, Article 104648. https://doi.org/10.1016/j.resconrec.
2019.104648.
Örsdemir, A., Kemahlıoğlu-Ziya, E., & Parlaktürk, A. K. (2014). Competitive quality
choice and remanufacturing.. Production and Operations Management, 23(1), 48–
64. https://doi.org/10.1111/poms.12040.
Qin, X., Liu, Z., & Tian, L. (2020). The optimal combination between selling mode
and logistics service strategy in an e-commerce market.. European Journal of Op-
erational Research. https://doi.org/10.1016/j.ejor.2020.07.029.
614
European Journal of Operational Research 296 (2022) 601–614
Ru, J., Shi, R., & Zhang, J. (2015). Does a store brand always hurt the manufacturer
of a competing national brand? Production and Operations Management, 24(2),
272–286. https://doi.org/10.1111/poms.12220.
Ryan, J. K., Sun, D., & Zhao, X. (2012). Competition and coordination in online
marketplaces.. Production and Operations Management, 21(6), 997–1014. https:
//doi.org/10.1111/j.1937-5956.2012.01332.x.
Statista. (2020a). Share of revenue from product sales of JD.com platform in to-
tal revenue from 2017 to 2019. Accessed October 1. https://www.statista.com/
statistics/1011703/china-revenue-share-of-self-operated-business-of-jd/.
Statista. (2020b). Percentage of paid units sold by third-party sellers on Amazon
platform as of 2nd quarter 2020. Accessed October 1. https://www.statista.com/
statistics/259782/third- party- seller- share- of- amazon- platform/.
Statista. (2020c). E-commerce share of total global retail sales from 2015
to 2023. Accessed October 1. https://www.statista.com/statistics/534123/
e- commerce- share- of- retail- sales- worldwide/.
Statista. (2020). Alibaba group – statistics & facts. Accessed October 1. https://www.
statista.com/topics/2187/alibaba-group/.
Statista. (2021). Revenue of Amazon logistics worldwide from 2017 to
2019. Accessed January 1st. https://www.statista.com/statistics/1179010/
amazon- logistics- revenue-worldwide/.
Tian, L., Vakharia, A. J., Tan, Y., & Xu, Y. (2018). Marketplace, reseller, or hybrid:
strategic analysis of an emerging e-commerce model.. Production and Operations
Management, 27(8), 1595–1610. https://doi.org/10.1111/poms.12885.
Turken, N., Carrillo, J., & Verter, V. (2020). Strategic supply chain decisions under
environmental regulations: When to invest in end-of-pipe and green technol-
ogy.. European Journal of Operational Research, 283(2), 601–613. https://doi.org/
10.1016/j.ejor.2019.11.022.
Wang, J. J., Torelli, C. J., & Lalwani, A. K. (2020). The interactive effect of power
distance belief and consumers’ status on preference for national (vs. private-
label) brands.. Journal of Business Research, 107, 1–12. https://doi.org/10.1016/j.
jbusres.2019.10.001.
Wei, J., Lu, J., & Zhao, J. (2020). Interactions of competing manufacturers’ leader-
follower relationship and sales format on online platforms.. European Journal of
Operational Research, 280(2), 508–522. https://doi.org/10.1016/j.ejor.2019.07.048.
Xiao, W., Gaimon, C., Subramanian, R., & Biehl, M. (2019). Investment in environ-
mental process improvement.. Production and Operations Management, 28(2),
407–420. https://doi.org/10.1111/poms.12927.
YahooFinance. (2021). Big tech’s antitrust hearing: what you need
to know. Accessed February 25. https://finance.yahoo.com/news/
big- tech- antitrust- hearing- know- 040100446.html.
Yan, Y., Zhao, R., & Liu, Z. (2018). Strategic introduction of the marketplace chan-
nel under spillovers from online to offline sales.. European Journal of Operational
Research, 267(1), 65–77. https://doi.org/10.1016/j.ejor.2017.11.011.
Yan, Y., Zhao, R., & Xing, T. (2019). Strategic introduction of the marketplace chan-
nel under dual upstream disadvantages in sales efficiency and demand informa-
tion.. European Journal of Operational Research, 273(3), 968–982. https://doi.org/
10.1016/j.ejor.2018.09.022.
Zennyo, Y. (2020). Strategic contracting and hybrid use of agency and wholesale
contracts in e-commerce platforms.. European Journal of Operational Research,
281(1), 231–239. https://doi.org/10.1016/j.ejor.2019.08.026.
Zhang, J., Cao, Q., & He, X. (2019). Contract and product quality in platform sell-
ing.. European Journal of Operational Research, 272(3), 928–944. https://doi.org/
10.1016/j.ejor.2018.07.023.
Zhang, S., & Zhang, J. (2020). Agency selling or reselling: E-tailer information shar-
ing with supplier offline entry.. European Journal of Operational Research, 280(1),
134–151. https://doi.org/10.1016/j.ejor.2019.07.003.
Zhou, Y., Liu, T., & Cai, G. (2019). Impact of in-store promotion and spillover effect
on private label introduction.. Service Science, 11(2), 96–112. https://doi.org/10.
1287/serv.2019.0236.
Zippel, C., Wilkinson, J., & Vogler, T. (2013). The influence of private labels on re-
tailer cooperation.. Australasian Marketing Journal (AMJ), 21(4), 271–277. https:
//doi.org/10.1016/j.ausmj.2013.08.008.