Private brand encroachment and channel structure in a hybrid platform

Abstract

Nowadays, major online platforms offer the hybrid channel for manufacturers. Therefore, the manufacturer has the option to select from three channel structures: reselling channel, agency selling channel, and hybrid channel. To break through the limitations of simply providing platform services and retail channels, many online platforms introduce private brands to compete with manufacturers. In this research, we construct a game-theoretic model to examine the interplay between the manufacturer’s channel structure and the online platform’s private brand encroachment strategy. Through comparative and equilibrium analyses, some interesting results are found. First, when the commission fee is relatively low, PBE has the potential to inhibit the escalation of the wholesale price and alleviate the double marginalization effect. Second, without private brand, the hybrid channel is not a good option for the manufacturer. However, the private brand encroachment strategy of the online platform substantially increases the manufacturer’s motivation to choose the hybrid channel. The private brand encroachment strategy and the channel strategy have asymmetric mixed relationship of complementarity and substitutability. Third, when the commission fee is low, PB with far less market potential or quality than specialized manufacturers still have value to introduce. Finally, several extended analyses are conducted to verify the robustness of the results and more interesting implications are derived.