Study On The Manufacturer’ Strategy Of Selling Channel Selection With The Competing Strong And Weak Retailers

Recent innovations in e-commerce have lead to the emergence of platforms, whichmanufacturers can use to directly reach out to customers. In this paper we analyze underwhat market conditions should e-tailers set up e-commerce platforms instead of enteringin a more conventional reseller agreement with manufacturers. Given the proliferationof platforms, there is a need to understand conditions under which use of platforms is aviable strategy for e-tailers specially in the presence of existing retail channels. In thispaper, we identify conditions in which platforms should be used and the implications ofusing platforms on various market participants like the e-tailer, manufacturer andconsumers. We use a theoretical model to capture the effect that various factors likemarket competition and cost have on this decision. This change in preference ismoderated by competition and as the competition increases, the e-tailers prefer to set upplatforms. We also identify conditions under which all markets participants are betteroff when platforms are used. Finally, we analyze the effect that a new entrant has onexisting e-channel structure and show that entry can disrupt existing channel structures.Surprisingly, we find that under some conditions consumers might face higher prices inthe electronic channel when there are competing e-tailers as opposed to a monopolistice-tailer.In another way it is common for a retailer to sell products from competingmanufacturers. The advent of e-commerce has prompted many manufacturers toredesign their traditional channel structures by engaging in platform sales. The modelconceptualizes the impact of customer acceptance of a platform channel and the degreeto which customers accept a direct channel as a substitute for shopping at a traditionalstore, on supply-chain design. The customer acceptance of a platform can be strongenough that an independent manufacturer would open a platform to compete with itsown retailers. Specifically, we construct a price-setting game between twomanufacturers and its common retailer. Platform marketing which indirectly increasesthe flow of profits through the retail channel helps the manufacturers improve overallprofitability by reducing the degree of inefficient price double marginalization. Finally,we show that introducing the platform can increase the manufacturer’s profits.