Rebate channel strategy for e-shops: build a cashback website or partner with a third-party cashback website

To attract more consumers, e-shops may provide online rebates by partnering with the third-party cashback website (CW) or building their own CWs. This paper investigates the rebate channel strategy of the e-shop under both the monopoly and duopoly settings. Our analysis shows that under the monopoly setting, (i) the e-shop builds its own CW to offer rebates if low-end consumers exhibit a high valuation and constitute a significant market fraction; otherwise, it partners with the third-party CW; (ii) the e-shop’s rebate channel selection has no impact on high-end consumers, whereas low-end consumers prefer the e-shop’s self-built CW if their valuation is relatively high. Under the duopoly setting, (iii) if low-end consumers possess a low valuation or their fraction is low, both e-shops partner with the third-party CW; if their valuation and fraction are both high, both e-shops build their own CWs; otherwise, one e-shop partners with the third-party CW while the other builds its own CW; (iv) as the valuation of low-end consumers rises, the more e-shops choose to build their own CWs, the higher consumer surplus will be. Additionally, we extend the model to situations with simultaneous rebate decisions, quality differentiation, and uniformly distributed transaction costs.