Strategic Interactions between BOPS and Information Sharing in Omnichannel Retailing

Abstract

We study a retail system in which a brand owner sells through both a direct online channel and an offline retailer under uncertain market demand. We investigate the strategic interaction between the Buy-Online-and-Pick-up-in-Store (BOPS) channel and the retailer’s demand information sharing. We find that the brand owner’s direct online sales mitigate the double marginalization effect and improve total supply chain profitability. Without BOPS, the retailer always withholds demand information. With BOPS, however, the retailer may voluntarily share demand information when BOPS primarily creates incremental online-originated demand and the retailer retains sufficient cross-selling benefits, as the competition mitigation effect and the cross-channel value-added effect together outweigh the double marginalization effect. From the brand owner’s perspective, BOPS adoption and information sharing are always strategic complements. For the retailer, complementarity holds when the online sales increment and competition intensity jointly satisfy certain conditions. To resolve cases where voluntary sharing fails, we propose two mechanisms: a fixed payment scheme and a bilateral revenue-sharing (BRS) contract. We show that the BRS contract can achieve a Pareto improvement, and its performance is primarily driven by the cross-selling rate and the online sales increment. We also extend the model to several settings including consistent pricing, competition mitigation, market expansion, and a screening game, providing a more comprehensive characterization of omnichannel retailing under demand information asymmetry.

Keywords

Retail system / buy-online-and-pick-up-in-store / information sharing / mechanism design / bilateral revenue-sharing contract

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