Pricing and bundling decisions for complementary products in an agency selling platform with risk-averse suppliers and stochastic demand

The exponential rise of e-commerce has prompted many companies to utilize online platforms (e-tailers) to sell their products. Agency selling is a prevalent policy among e-tailers where suppliers determine retail prices of their products, and the e-tailer charges an agency rate. This paper investigates the selling format and pricing problem of two risk-averse suppliers who sell complementary products on the e-tailer's platform. The e-tailer can offer products separately and as a bundle. A game-theoretic analysis reveals that the equilibrium prices of individual products and the bundle uniquely exist. The study explores that the e-tailer does not always benefit from a higher agency rate. Furthermore, the agency rate can influence the superiority of mixed bundling over separate selling. Moreover, a mixed-bundling strategy may hurt the supplier's profitability which is sensitive to marginal costs and the degree of risk aversion. Finally, when demand correlation increases, the supplier sets a lower price to mitigate the risk cost.