Implications of product line competition on channel matching strategies in a retail platform

Abstract

As retail platforms proliferate, the presence of agency selling and reselling in burgeoning retail platforms gives suppliers an incentive to match their product lines to sales channels. This study considers a supplier providing a product line of quality‐differentiated products in a retail platform. We aim to examine the equilibrium pricing in two mutually exclusive channel matching strategies: high‐end (low‐end) products are sold in an agency selling channel and low‐end (high‐end) products are sold in a reselling channel (termed channel matching strategies HL [LH]), and further analyze the impact of quality differentiation on the channel matching strategies and equilibrium outcomes. The results show that the impact of quality differentiation on channel matching strategies is jointly moderated by the channel competition, the commission rate, and the product cost difference. If the channel competition is intensive and the commission rate is low, under small (large) product cost difference, quality differentiation motivates the supplier to select strategy HL (LH). Counter‐intuitively, we show that improving the quality of high‐end products in a certain region at free of cost could make the supplier worse off when the product cost difference is sufficiently high. Interestingly, we find that when both the product cost difference and commission rate are small, the channel matching strategies can achieve a win‐win‐win situation for the supplier, the retail platform, and consumers simultaneously under a moderate (low) level of quality differentiation and intensive (weak) channel competition.