FMCG supply-chain coordination under network externality: decision modes and cost-sharing mechanisms

Abstract

This study aims to examine how network externality affects coordination in a fast-moving consumer goods (FMCG) supply chain in which a supplier undertakes product innovation and a retail platform controls advertising and access. It evaluates stationary outcomes under unilateral and bilateral cost sharing within a commission-based platform channel. An infinite-horizon differential game is developed with product quality and goodwill as state variables. Operational decisions are represented by interior stationary candidates implied by open-loop necessary conditions. In the cost-sharing scenarios, commission-indexed stationary response-based rules are derived by substituting the recipient's stationary effort response into the financing party's current-value Hamiltonian. The analysis compares stationary operating values, sharing-rate interiority, profit-rate differences, and numerical patterns. The case analysis illustrates how supplier product development and platform promotion jointly support goodwill formation and market expansion. Within maintained existence and demand-interiority conditions, the centralized stationary candidate yields the highest research and development (R&D) effort, advertising effort, product quality, goodwill, and demand. Under the response-based rules, a low commission rate supports an interior supplier contribution to platform advertising, while an intermediate rate supports interior contributions to both advertising and R&D. Network externality magnifies demand effects arising from governance-induced goodwill differences. Across examined admissible ranges, member-level stationary-profit-rate differences increase with network externality. This study integrates product-quality evolution, goodwill accumulation, consumer-side network externality, and commission-based platform governance within a dynamic framework. It separates advertising-side from R&D-side coordination and shows that bilateral sharing is not merely a stronger subsidy, but a distinct mechanism whose relevance depends on commission conditions and the source of goodwill formation across FMCG categories.