Manufacturer's Agency Selling and Reselling Choices and Online Intermediary's Information Sharing: The Role of Product Quality Decisions

ABSTRACT Meeting consumers' product‐quality demands is essential. Online intermediaries typically possess more accurate demand information than manufacturers and may share it to support quality adjustments. Manufacturers can adopt two selling formats: agency selling, in which they sell directly to consumers through intermediaries and pay commissions, and reselling, in which intermediaries purchase products from manufacturers at wholesale prices and then resell them to consumers. Manufacturers may also sell to downstream resellers who distribute through intermediaries. We develop a game‐theoretic e‐commerce supply chain model in which a manufacturer adjusts product quality in response to realized demand and chooses between agency selling and reselling, while the intermediary decides whether to disclose demand information to the manufacturer, the reseller, or both. Our results yield several insights. First, sharing demand information only with the manufacturer may reduce product quality under both selling formats. Second, under agency selling, the intermediary may disclose information either only to the manufacturer or to both parties; endogenous quality decisions increase full disclosure while reducing manufacturer‐only sharing. Under reselling, with exogenous quality, the intermediary either shares information only with the reseller or withholds it. However, when quality improvement is sufficiently efficient, it may disclose information to both parties despite higher wholesale‐price uncertainty. Furthermore, anticipating the intermediary's disclosure strategy, the manufacturer may still choose higher product quality under agency selling even when this results in a lower expected wholesale price than under reselling. Thus, the manufacturer's preferred selling format depends on which format better induces the intermediary to restrict information disclosure to the intended party. Finally, we show that agency selling can improve consumer surplus and social welfare and may also benefit all supply chain members with endogenous quality decisions.