Download This PaperWhen should a retailer introduce a third-party platform channel?—The impact of the spillover effect
40 Pages Posted: 28 Dec 2019 Last revised: 13 Aug 2020
Date Written: April 26, 2019
Abstract
With the increasing popularity of third-party platforms, some retailers have used third-party platform to sell their products in addition to their own online and offline channels, while others retailers have not. An important question thus arises: should a retailer sell through a third-party platform when online and offline channels have existed, and if so, which selling format the retailer should adopt. Considering the interaction between channels, this study establishes a model in which the spillover effect can act in two directions: spillover from offline to Internet channels and spillover from Internet to offline channels. Three scenarios are explored: a dual-channel scenario (D); a multi-channel scenario: reselling (MR); and a multi-channel scenario: agency selling (MA). We investigate how the direction of spillover effects influences the retailer’s channel selection decision and selling format preference. The value of the online channel and the path of channel selection are also discussed. Our theoretical analysis shows that a retailer with both online and offline channels always benefits from the use of a third-party platform channel. However, if there is no online channel and the spillover effect is from offline to internet channels, the retailer should not adopt the third-party platform when the channel competition is high and the spillover effect is small. Channel competition, agency fee, spillover effects, and their directions moderate the retailer’s and the third-party platform’s selection decision of the selling format. Specifically, if the agency fee is low and the channel competition is medium, as the spillover effect increases, the retailer is more likely to prefer MR under the spillovers from offline to Internet channels but to prefer MA when the spillovers are from Internet to offline channels. We also find that the relationship between the online channel and the third-party platform channel is complementary, and in most cases, the best path of channel introduction is from S (offline channel) to D, and then to MR/MA. There are two Pareto zones under the spillovers from offline to Internet channels.
Keywords: Third Party Platform; Multi Channel Retailer; Platform Selling Format; Spillover Effect; Channel Selection
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