Interaction and optimal decisions of sourcing strategy and selling mode in online platforms

Abstract

In recent years, online platforms such as Amazon and JD.com have increasingly introduced private labels (PL) to enhance their competitive edge, leading to conflicts with national brands (NB). A critical decision for these platforms lies in sourcing of PL products: either from third-party manufacturers (strategy T) or NB manufacturers (strategy M). In turn, NB manufacturers must strategically determine their selling modes on platforms, opting for either reselling or agency mode, in response to the platform's PL sourcing strategy. This study explores the intricate interactions between platform's PL sourcing strategies and NB manufacturer's selling mode choices, revealing several significant insights. When commission rates are low (high), NB manufacturers prefer the agency (reselling) mode. Interestingly, their preferences for selling modes differ under varying sourcing strategies. Specifically, under strategy T, NB manufacturers favor the agency mode when commission rates are moderate and the market size of PL products is large, while under strategy M the reselling mode becomes more advantageous. Furthermore, heightened competition increases the appeal of the agency mode under strategy T and the reselling mode under strategy M for NB manufacturers. From the platform's perspective, strategy M is preferred when brand spillover effects are significant and the market size of PL products is relatively small. However, under high competition intensity, the platform tends to favor strategy T with reselling mode and strategy M with agency mode. Notably, as competition intensifies, the sales quantity of PL products consistently decreases, while the sales quantity of NB products shows potential for increase.