Abstract: The purchase intention of online consumers is seriously affected by the complicate e-commerce environment and the frequent online fraud. Online sellers solve these problems by offering pay-on-delivery, helping to stimulate the potential market demand. However, it may increase the return rate and firms' operation cost. It is critical to balance the advantages and disadvantages and make the optimal operation strategy under different payment schemes. The online seller's optimal price and inventory decisions are researched under pay-to-order and dual payment scheme respectively (both include pay-to-order and pay-on-delivery). It's found that:1) the price is higher in pay-to-order; 2) the comparison between the two kinds of payment scheme mainly depends on the operating income per unit and the scale of potential market; 3) the profit in dual scheme is higher when consumers all choose pay-to-order than when they all choose pay-on-deliver, moreover, both less than the maximization of the profit, which is affected by market structure.

Key words: pay-to-order, pay-on-delivery, rational expectation, e-commerce, consumer behavior