Supply chain channel configuration with power imbalance and spillovers under platform retailing

Abstract

This study examines how channel selection power and brand spillovers affect firms’ channel configuration strategies in a platform retail market. We consider four modes based on the different selling choices of the strong-brand (the former) and weak-brand (the latter) manufacturers, namely, modes $rr$, $ar$, $ra$, and $aa$, in which $r$ ($a$) stands for the reselling (agency) channel. Meanwhile, the strong-brand manufacturer has the channel selection power, while the platform will consider whether to implement a brand spillover strategy. Some intriguing findings are derived. First, the equilibrium channel structures primarily depend on the channel selection power, degree of complementarity, commission rate, and brand spillover effect. Second, to avoid horizontal externalities, manufacturers will only choose mode $rr$ when the degree of complementarity is high even if the commission rate is zero. Third, when both manufacturers have channel selection power, modes $rr$, $ar$, and $aa$ are the optimal channel configurations, while mode $ra$ will be excluded, and the brand spillover effect discourages manufacturers from choosing the agency channel. Finally, endowing manufacturers with channel selection power may result in a triple-win situation for the three firms, although this does not always benefit consumers. Moreover, endowing the weak-brand manufacturer with channel selection power always favors the strong-brand manufacturer in a complementary market, whereas the opposite is true in a substitute market.