Online Platform Service Investment: A Bane or a Boon for Supplier Encroachment

International Journal of Production Economics, 2021.

42 Pages Posted: 25 Mar 2021

See all articles by Xuefeng Zhang

Xuefeng Zhang

affiliation not provided to SSRN

Guo Li

University of Texas at Dallas; Beijing Institute of Technology

Mengqi Liu

Hunan University - Business School

Suresh Sethi

University of Texas at Dallas - Naveen Jindal School of Management

Date Written: February 19, 2021

Abstract

This paper investigates a platform service supply chain composed of a single supplier and a service platform that not only resells products but also may serve as an intermediary that connects the supplier to consumers directly. The service platform can improve the performance of the retail channel by investing in retail service. The supplier decides whether to encroach on the retail market by opening a direct channel on the platform. We analyze the interaction between the platform’s service investment strategy and the supplier’s encroachment decision by establishing a game model. We then compare the payoffs of the firms under different service investment strategies and find that the platform benefits from supplier encroachment in several cases. The benefit not only comes from the reduction of the double marginal effect but also from the share of profits that the supplier earns from the direct channel. A spillover effect can be observed in the platform’s service investment. The spillover effect causes the increased profits generated by such investment to transfer to the supplier, ultimately resulting in that the service investment by the platform does not necessarily create more revenue for itself, but increases the supplier’s profit. Results indicate that a platform’s investment in retail service is not always intended to prevent supplier encroachment. In some cases, such investment is meant to induce a supplier to encroach through the platform. Robustness analysis shows that the main results derived in the basic model hold. Managerial implications are then discussed and provided.

Keywords: Platform service supply chain; Service platform; Retail service investing; Supplier encroachment; Channel selection

Suggested Citation

Zhang, Xuefeng and Li, Guo and Liu, Mengqi and Sethi, Suresh, Online Platform Service Investment: A Bane or a Boon for Supplier Encroachment (February 19, 2021). International Journal of Production Economics, 2021., Available at SSRN: https://ssrn.com/abstract=3790714 or http://dx.doi.org/10.2139/ssrn.3790714

Xuefeng Zhang

affiliation not provided to SSRN

Guo Li (Contact Author)

University of Texas at Dallas ( email )

2601 North Floyd Road
Richardson, TX 75083
United States

Beijing Institute of Technology ( email )

5 South Zhongguancun street
Center for Energy and Environmental Policy Researc
Beijing, Haidian District 100081
China

Mengqi Liu

Hunan University - Business School ( email )

Changsha, Hunan 410082
China

Suresh Sethi

University of Texas at Dallas - Naveen Jindal School of Management ( email )

800 W. Campbell Road, SM30
Richardson, TX 75080-3021
United States

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
76
Abstract Views
491
Rank
567,594
PlumX Metrics