Design of platform-labeling standards and competition strategy for retail platforms

Abstract

In operations management, eco-labels have become a crucial measure to stimulate green product production and consumption. Most related research focuses on self-labeling by firms or national-labeling by external certifiers, while few studies consider the implementation of platform-label certification. After constructing a two-stage optimization model to explore the design mechanism of platform-labeling standards, we propose the optimal platform-label design policy in a platform-based supply chain. We also propose the optimal strategies for competing firms on the retail platform. When the labeling credibility is high, the platform-labeling policy benefits the platform-labeled retailer. The platform-labeling strategy achieves Pareto improvement in total profit and environmental benefit under a global (entire sales season) optimization criterion or with a profit-maximizing platform. Both the platform-labeled retailer and environment benefit more from our proposed solutions for platform-labeling than current common policies. When platform designs a higher platform-labeling standard, effective measures must be taken to improve the platform’s reputation. The retailers should adopt platform-labeling when its credibility is high but retain self-labeling when it is low. Platforms can compensate the benefit-injured party through cost sharing and commission reduction while gaining more money from the beneficiary. We identify how and when the platform should intervene to stimulate green product development through platform-labeling certification and extend the base model to validate the robustness of our main results.