Impact of Own Brand Product Introduction on Optimal Pricing Models for Platform and Incumbent Sellers

Abstract

Sales on the e-commerce platform in the United States have experienced explosive growth and are projected to surpass $740 billion in 2023. The expansion of the platform’s traditional role as a reseller into an online marketplace and the introduction of its own brand products have stoked a huge fear among the incumbent sellers. The platform’s unfair anti-competitive practice further aggravates the situation. Consequently, politicians and regulators have proposed prohibiting platforms from introducing own brand products to protect the incumbent sellers. This study addresses two questions of critical interest to the policymakers and the incumbent sellers. First, how does the platform’s introducing its own brand product affect the incumbent sellers? Second, how effective is the proposed policy in terms of protecting the incumbent sellers? We examine the impact of the platform’s own brand introduction on the incumbent sellers under two prevailing sell-on and sell-to pricing contracts. We find that the proposed legislation “that prohibits platforms from both offering a marketplace for commerce and participating in that marketplace” does not have the desired outcome of helping the incumbent sellers. Instead, it forces the platform to adopt only the sell-to contract with its own brand introduction which hurts the sellers under most market conditions.

Quality differentiation and channel structure on online platforms

“…Luo et al (2022) and Ha et al (2022) consider a hybrid platform that allows both the agency selling and reselling models to coexist. Cheng et al (2022) and Zhang and Hou (2022) examine the effects of establishing an e‐commerce platform brand on corporate selling format decisions. Other studies explore the influence of various operational decisions on platform sales models, including contract negotiations (Chen et al, 2022, 2023), information sharing (Ha et al, 2022; Zhang & Zhang, 2020), and intercompany competition (Tian et al, 2018).…”

Should the Internet of Things platform enter the smart device market?

“…Alaei et al (2022) study the influence of proportional and user-centric revenue sharing contract on content provision decisions of music streaming platform providers. Cheng et al (2022) examine the impact of the e-commerce platform's brand product introduction on optimal pricing models in a competitive supply chain setting and present the optimal government platform regulatory strategy. Zha et al (2023) examine the impact of hardware access platform entry into the device manufacturing process on pricing decisions of differentcapability device manufacturers under wholesale pricing and revenue-sharing contracts.…”

The rise of empirical online platform research in the new millennium

“…Consequently, it has sparked intense debates among politicians and regulators. While recent theoretical studies have presented intriguing guidelines for policymakers (Cheng et al, 2023), empirical evidence on this critical issue remains sparse. This scarcity underscores a promising avenue for future empirical research.…”

“…Similarly, using granular data from Alibaba, live chat functionality increases purchase probability (Tan et al, 2019). Finally, as a unique phenomenon of the platform‐based market, an e‐commerce platform can play the dual role of both operating and participating in its own platform by introducing own brand products (Cheng et al, 2023; Zhu & Liu, 2018). Consequently, it has sparked intense debates among politicians and regulators.…”

“…Similarly, with multihoming gradually becoming a common practice among platform users (Koh & Fichman, 2014; Kwon et al, 2017), it may not be practical to assume that users can only join one platform without considering their multihoming decisions (e.g., Caillaud & Jullien, 2003). On the other hand, recent theoretical studies on a series of platform‐related debates, such as antitrust regulation (e.g., Cheng et al, 2023; Cong & Mayer, 2023) and token‐based platform financing (e.g., Cong et al, 2022; Gryglewicz et al, 2021), also point to increased theorizing on how to frame empirical research when such empirical evidence remains scarce.…”