Interaction between online retail platforms' private label brand introduction and manufacturers' channel selection

Abstract

Recently, the issue of whether to introduce private label brands to online retail platforms and the interaction between this decision and manufacturers' channel selection has garnered extensive interest. However, these studies assume that manufacturers exclusively distribute their products through the agency or reselling channels, ignoring the situation where some manufacturers use dual channels. Therefore, we develop a Stackelberg game model to examine the strategic interaction between introducing an online retail platform's private label brand and a manufacturer's channel selection under different pricing strategies. Our findings indicate that introducing private label brands by online retail platforms hurts manufacturers' profits. When manufacturers opt for various pricing strategies, the equilibrium outcomes diverge significantly. Specifically, under the differential pricing strategy, the platform's decision depends on product substitutability, and the manufacturer never chooses the agency mode. Under the uniform pricing strategy, the platform's optimal decision is always to introduce a private label brand, and the manufacturer never chooses the reselling mode. In addition, the analysis demonstrates that platforms that introduce private label brands can alleviate the double marginalization. Our findings provide insights for managers of online retail platforms to decide on introducing private label brands and for manufacturers to make channel selection decisions.