Optimal Pricing Models of Independent Merchant and Online Marketplace in the Presence of Own Brand Product Competition

Posted: 25 Apr 2019

See all articles by Young Kwark

Young Kwark

Warrington College of Business, University of Florida

Jingchuan Pu

University of Florida - Warrington College of Business Administration

Kyung Sung Jung

Warrington College of Business, University of Florida

Hsing Kenneth Cheng

University of Florida - Warrington College of Business

Date Written: March 26, 2019

Abstract

Online retailers expand their traditional reselling role to that of online marketplaces and increasingly join product competition by selling their own-brand products. For the independent seller in online marketplaces, it is critical to have comprehensive understanding of pricing options (to sell on the retailer's marketplace or sell to the retailer), especially in the presence of market competition (with own-brand retailer or another third-party seller). For the own-brand retailer, although the retailer's incentive to have its own-brand product is relatively straightforward, its preference for pricing options (as a marketplace provider or a traditional reseller) is not well understood. In this paper, for both the independent seller and the retailer, we explore their preferences among these options and examine factors that affect their preferences. In pricing options, the seller determines its retail price and pays fees to the retailer (sell-on scenario) or sells the product to the retailer (sell-to scenario). We find that the sell-on scenario is always seller's preference over the sell-to scenario regardless of the market competition; however, the retailer's preference depends on the degrees of the consumer informedness and its market dominance. Both the seller and the retailer can make a higher profit in the sell-on scenario than the traditional wholesale contract, only if consumers are knowledgeable in product preferences. Surprisingly, the seller always prefers to compete with the own-brand retailer in the sell-on scenario, while it never does in the sell-to scenario; that is, contrary to the beliefs of the store brand's threat to the seller, the seller prefers competing with the own-brand retailer, which holds only in the sell-on scenario.

Keywords: retailer brand, online marketplace, consumer informedness

Suggested Citation

Kwark, Young and Pu, Jingchuan and Jung, Kyung Sung and Cheng, Hsing Kenneth, Optimal Pricing Models of Independent Merchant and Online Marketplace in the Presence of Own Brand Product Competition (March 26, 2019). Available at SSRN: https://ssrn.com/abstract=3360689

Young Kwark (Contact Author)

Warrington College of Business, University of Florida ( email )

PO Box 117165, 201 Stuzin Hall
Gainesville, FL 32610-0496
United States

Jingchuan Pu

University of Florida - Warrington College of Business Administration ( email )

Gainesville, FL 32611
United States

Kyung Sung Jung

Warrington College of Business, University of Florida ( email )

Gainesville, FL 32611
United States

Hsing Kenneth Cheng

University of Florida - Warrington College of Business ( email )

P.O. Box 117169
Gainesville, FL 32611-7169
United States
352-392-7068 (Phone)
352-392-5438 (Fax)

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