Impact of e‐marketplace on supply chain under the markdown policy

PurposeThis paper aims to explore the effect of e‐marketplace on the supply chain's performance under the markdown policy. Profit and risk analyses are both conducted and channel coordination issues are examined.Design/methodology/approachThe paper presents a markdown policy supply chain analytical model with e‐marketplace and examines the optimal markdown policy. The mean‐variance theory is employed to study both the risk and profit residing in the supply chain. Extensive numerical analysis is conducted. The paper investigates both the cases when e‐marketplace selling price is exogenous and endogenous.FindingsThe markdown policy can coordinate the supply chain as long as the parameters satisfy certain analytical conditions. The expected profit and risk in the supply chain are both increased when e‐marketplace is introduced. The retailer shares a larger portion of the increased expected profit but at the same time bears a higher risk.Research limitations/implicationsIn this study, similar to the mainstream literature in the related area, the supply chain consists of one manufacturer and one retailer, and there is one single selling season with one product. Despite being able to generate interesting analytical results, this model fails to capture the more complicated real world practices.Practical implicationsThe existence of e‐marketplace can be beneficial to the whole supply chain in terms of expected profit improvement. When the expected profit increase brought about by e‐marketplace is large enough to compensate for both the operational cost of e‐marketplace and the increase of the risk, the retailer could consider introducing e‐marketplace to dispose of the excess inventory.Originality/valueThis paper is an original work. It is based on the reviewed literature and the model with markdown policy is new. This could be a reference for further research into optimal performance in the supply chain with e‐marketplace.