Optimal Pricing Models of Independent Merchant and Online Marketplace in the Presence of Own Brand Product Competition
Posted: 25 Apr 2019
Date Written: March 26, 2019
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
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