Selling on Amazon: When the Reseller Channel Pays Off

Author: University of Texas at Austin
Published: 16 Jul 2024 - Updated: 4 Nov 2026
Publication Details: Peer-Reviewed | Instructive / Helpful

Table of Contents:
Synopsis - Definition - Overview - FAQs - Insights, Updates - Related Content

Synopsis

This research from the University of Texas at Austin McCombs School of Business, published in the peer reviewed journal Production and Operations Management, uses mathematical models to compare the two ways online platforms such as Amazon work with outside sellers. In the agency channel the seller keeps control of price and stock and pays fees, while in the invitation-only reseller channel Amazon buys the goods and sets the price. The study finds that reselling pays when many outlets sell easily substituted products, while the agency channel suits niche goods with fewer competitors. The work is useful for small businesses, home-based sellers and entrepreneurs with disabilities who rely on online marketplaces for income.*

At a Glance

1 - Amazon collects about $140 billion a year in seller fees.
2 - Non-Amazon sellers account for about 60 percent of sales on the platform.
3 - Complaints from sellers about fees have drawn a probe by the Federal Trade Commission.
4 - Being willing to walk away from the agency channel may push the platform to offer better reselling terms.

Topic Definition

Reseller Channel: A reseller channel is an arrangement in which an online platform or retailer buys products from a manufacturer or seller and then sells them to consumers itself, setting the price and handling storage, shipping and customer service. It differs from an agency or marketplace channel, in which the seller lists products on the platform, keeps ownership and pricing control, and pays the platform fees on each sale.

Overview

On Amazon Prime Day in July 2024, shoppers could browse over 600 million products. They may not be aware that most of those listings are from non-Amazon sellers, who account for 60% of sales on the platform. Most are small- and medium-sized businesses: bookstores selling used hardbacks, toymakers selling original goods, and distributors unloading clothes.

What shoppers also don't see is the choice that the platform and the seller make about how to interact. Is it better for the seller to retain control over the price of their product, but share a fraction of revenue with Amazon? Or should they sell to Amazon and let it resell their products to consumers?

New research from Texas McCombs may help them determine when it pays to sell to Amazon - and when it does not. Stephen Gilbert, professor of information, operations, and risk management and the Eddy Clark Scurlock Centennial Chair in Business, creates mathematical models of the interactions between companies and consumers.

With Parshuram Hotkar of the Indian School of Business and Chuanjun Liu at Fudan University in Shanghai, Gilbert modeled the two types of channels that e-commerce platforms such as Amazon offer sellers.

The agency channel is the most common one and the most independent. The seller lists its goods on the platform but keeps control of inventory, pricing, and possibly fulfillment.
The reseller channel is a partnership, in which the retailer buys the seller's inventory, sets prices, and ships products. Reseller channels are more exclusive, with Amazon's being invitation-only.

Reseller relationships hold out the hope of higher sales volumes, thanks to Amazon's marketing might. But they come at a cost. Amazon collects $140 billion a year in seller fees, and complaints from sellers about unfair fees have drawn a probe from the Federal Trade Commission.

Amazon, for its part, argues that the fees cover its costs, such as its distribution network, inventory management, shipping, and delivery. Under the agency channel, the seller bears those costs.

The conventional wisdom has been that for sellers with high sales volumes, a reselling relationship is worth the added fees.

"It's true that a high-volume reseller may have a better chance of getting into one of these relationships," says Gilbert. "But we're saying there's more to it than that."

More to Reselling

In constructing the models of seller and reseller channels, Gilbert's team looked at several factors that influence the choice between them.

Other channels

Some manufacturers already sell their goods in other places, such as brick-and-mortar stores, their own websites, or e-commerce storefronts such as eBay and Etsy.

Number of players

The number of other resellers involved - such as traditional stores - affects the intensity of competition in the marketplace.

Substitutability

For mass-market goods, it's relatively easy to substitute one channel for another. A shopper can find Gillette razor blades at a wide variety of outlets that offer comparable convenience.

For more artisanal goods, such as a set of wind chimes, it might be harder to substitute an online channel. A shopper might want to see and hear them in person before buying.

These variables, Gilbert found, can affect a seller's choices.

A reseller relationship can be attractive when competition and substitutability are high, as with razor blades. If shoppers can buy the same product from several sources, Amazon is more likely to offer a good deal. Says Gilbert, "Both the platform and the manufacturer are better off."
The agency channel makes more sense when a product's market is smaller, and shoppers have fewer options to find it. With less competition, the seller can set higher prices and reap higher profits.

He notes that sellers have a third choice: neither channel. That might be the best option, if Amazon sales would cannibalize too much of their existing sales.

"If those sales do not generate enough incremental profit to offset a possible reduction in profit from traditional reselling channels, the seller should consider walking away from the platform," Gilbert says.

As with negotiating over a car, a walkout could even lead to a better deal, he adds.

"A seller's willingness to walk away from the platform's agency channel might make the platform more willing to offer it favorable reselling terms."

"Channel Choice via On-Line Platform" is published in Production and Operations Management.

Frequently Asked Questions

NOTE: Researched FAQs by Disabled World (DW)

What is the difference between Amazon 1P and 3P selling?

First-party, or 1P, selling means Amazon buys products wholesale and resells them. Third-party, or 3P, selling means independent sellers list and price their own products on the marketplace and pay fees.

Can people with disabilities run an online store from home?

Yes. Online selling can offer flexible hours and remove the need to commute, and many marketplaces work with screen readers and other assistive technology, though accessibility varies by platform.

What fees do online marketplace sellers usually pay?

Common fees include a referral or commission on each sale, monthly subscription fees, and optional charges for storage, fulfillment and advertising.

Does selling online affect disability benefits?

Income from self-employment can affect means-tested benefits such as SSI, and earnings rules differ by program, so sellers should report income and check with the benefits agency.

What is channel cannibalization?

It happens when sales through a new channel come at the expense of sales a business already makes elsewhere, so total profit may not rise as much as expected.

What is substitutability in retail?

Substitutability describes how easily a shopper can buy the same or a similar product from another seller or store. High substitutability usually means more price competition.

Is Amazon the only option for small online sellers?

No. Sellers can also use their own websites, other marketplaces such as eBay or Etsy, social media shops and local stores, and many use several channels at once.

What is a mathematical model in business research?

It is a set of equations that represents how buyers, sellers and platforms behave, letting researchers test how changes in prices, costs or competition might affect profits.

Insights, Analysis, and Developments

Editorial Note: For a small seller, the choice of how to work with a giant marketplace can decide whether online sales add profit or quietly eat into it. The model suggests that sales volume alone is not the deciding factor: competition, how easily shoppers can buy the same item elsewhere, and how much a new channel takes from existing sales all matter. That is practical guidance for home-based and disabled entrepreneurs, who often depend on online platforms because they offer flexible hours and remove the need to travel, and who need to weigh fees and loss of pricing control carefully before signing up.*

Attribution/Source(s): This peer-reviewed publication was selected for publishing by the editors of Disabled World (DW) due to its relevance to the disability community. Originally issued as a press release by University of Texas at Austin and published on 16 Jul 2024. Last updated on 4 Nov 2026. This content may have been edited for style, clarity, or brevity.

* Editorial additions by Ian C. Langtree.