To Business or Consumer? Competing Choices of Business Models for Online Fresh Stores

Suppliers who procure fresh products from spot markets and sell them through online fresh stores have become increasingly prevalent. This paper develops a game-theoretic model to analyze the strategic choice between the Business-to-Business (B2B) and Business-to-Consumer (B2C) models for two competing suppliers. In the B2B model, each supplier sells to an exclusive retailer through a contingent-pricing contract (CPC), where the contract price is tied to the spot price. In contrast, in the B2C model, suppliers sell directly to consumers but incur direct selling costs. Our analysis reveals that when the correlation between market demand and spot price is relatively weak, both suppliers prefer the B2C model. In contrast, a strong correlation encourages suppliers to choose the B2B model, allowing them to secure higher contract prices and mitigate risks associated with spot price volatility. Furthermore, intensified competition incentivizes the adoption of the B2B model to alleviate competitive pressure, while increased demand uncertainty or spot price volatility may prompt suppliers to adopt the B2C model to eliminate the double marginalization effect. This study provides valuable insights on business model selections under demand uncertainty and spot price volatility, helping suppliers navigate online fresh product markets.