Marketplace channel encroachment under private brand introduction of online platform

Abstract

This paper studies the marketplace channel introduction of contract manufacturers and the response of the platform with an option to introduce a private brand. We develop a game-theoretical model to examine a three-tier e-commerce supply chain including a contract manufacturer (CM), an original equipment manufacturer (OEM) and a platform and derive the equilibrium results. We find that the marketplace channel introduction of the CM and the platform's private brand introduction influence each other. More specifically, marketplace channel encroachment may discourage the platform from introducing a private brand, and this preference is reinforced as the referral fee increases. Interestingly, the introduction of the platform's private brand increases the likelihood of contract manufacturer encroachment, which is mediated by the difference between the two private brands of the CM and platform--as the difference increases, the CM prefers to enter the marketplace channel. Furthermore, only contract manufacturer encroachment (or private brand introduction for the platform) can always benefit the whole supply chain, but the supply chain may be hurt when the platform and the CM perform their strategies simultaneously. In the extension section, in addition to demonstrating the validity of our main results when the CM and the OEM act as a single entity, we also find that the first-mover advantage of the platform may reduce the possibility of the contract manufacturer encroachment.