Strategic adaptation for online platform retailers in government-regulated digital marketplaces

Abstract

This study investigates the strategic decisions of online platform retailers (OPRs) within government-regulated digital marketplaces, focusing on India’s Open Network for Digital Commerce (ONDC). The ONDC initiative, aimed at democratizing e-commerce, presents both challenges and opportunities for large and medium-sized OPRs accustomed to traditionally unregulated environments. Employing a Stackelberg game-theoretic model, the study analyzes three scenarios: (1) neither OPR joins ONDC, (2) only one OPR joins ONDC, and (3) both OPRs join ONDC. Each scenario evaluates key factors—pricing strategies, sales efforts, and supply chain profitability—to determine how regulatory frameworks impact competitive dynamics. The findings reveal a trade-off for OPRs between higher short-term profits when abstaining from ONDC and enhanced long-term value through ONDC participation. Specifically, participation in ONDC can facilitate market sustainability and growth for sellers, underscoring the transformative potential of regulated digital ecosystems. This study provides actionable insights for OPRs contemplating ONDC adoption, highlighting the strategic risks such as potential market share erosion and supply chain inefficiency. For policymakers, it emphasizes the importance of balancing the interests of OPRs and sellers to foster an inclusive, competitive digital marketplace. By examining the strategic adaptations of OPRs within a government-regulated digital marketplace, this study advances the understanding of regulatory impacts on competitive environments and offers a generalizable framework for decision-making in global digital economies.