Spillover Effect of Consumer Awareness on Third Parties' Selling Strategies and Retailers' Platform Openness
39 Pages Posted: 24 Feb 2019
Date Written: October 8, 2017
The purpose of this study is to explore why an online retailer would open its platform and why a third-party seller would join the platform when the third party carries products identical to those the retailer sells as well as products the retailer does not carry. When the third party joins the retailer's platform, more consumers become aware of the third party's existence, and thus might become aware of its other products which are not listed on the retailer's platform (e.g., by searching the seller brand online), which is called the spillover effect. We develop a game-theoretic model to first examine the spillover effect on the third-party seller selling strategies under an exogenous commission rate (i.e., which product to sell on the retailer's platform). We then examine the effect on the retailer's platform-openness decision. We find that the third party's optimal selling strategies vary with its initial awareness level, the extent of the spillover effect, and the commission rate. Furthermore, we characterize how the initial awareness level and the extent of the spillover effect together determine the retailer's openness decision and equilibrium selling partnership. When the spillover effect is mild, the retailer opens its platform and the third-party seller sells its exclusive product on the platform. When the spillover effect is salient, if the retailer has a large informational advantage over the third party, the retailer has no incentive to open; otherwise, the retailer opens its platform and the third party sells the identical product on the platform. Finally, we find that, compared to the case without a spillover effect, the spillover effect makes the retailer less likely open its platform, but it makes the third party more likely sell identical products on an open retailer platform; the spillover effect always (weakly) benefits the third party, but it does not necessarily hurt the retailer.
Keywords: platform openness, competition, spillover effect, online retailing
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