Strategic Third-Party Product Entry and Mode Choice under Self-Operating Channels and Marketplace Competition: A Game-Theoretical Analysis

Abstract

To bolster their competitiveness and profitability, prominent e-commerce platforms have embraced dual retailing channels: self-operating channels and online marketplaces. However, a discernible trend is emerging wherein e-commerce platforms are expanding their marketplaces to encompass competitive third-party suppliers. Motivated by this trend, this study sought to examine the strategic integration of a third-party product amidst the competition between a self-operating channel and a marketplace. This investigation involved the development of a game-theoretic model involving a platform and two representative suppliers—an incumbent supplier and a new entrant. Specifically, we delved into establishing an equilibrium partnership between the platform and the new entrant supplier while also evaluating the self-operating strategy of the established supplier. Our analysis uncovered a counterintuitive outcome: an escalation in the commission rate resulted in diminished profits for the established supplier. Furthermore, we ascertained that the economic implications of a competitive product entry pivot significantly on product quality. Lastly, we demonstrated that the revenue-sharing rate plays a pivotal role in influencing the self-operating strategy of the established supplier, and the market equilibrium hinges on the interplay among product quality, the commission rate, and the revenue-sharing rate. These insights provide invaluable guidance for marketers and e-commerce platforms in their strategic decision-making processes.