Nourish Your Competitor: Information Sharing in Own-Brand e-Marketplace
Posted: 9 Nov 2019 Last revised: 22 May 2020
Date Written: October 30, 2019
With the great success and huge data of e-marketplaces, online retailers aggressively expand their own-brand business (e.g., Amazon). A seller competing with the own-brand retailer in the retailer’s e-marketplace suffers from a dearth of knowledge about consumers; however, the retailer holds such information, being tightfistedand selective in sharing. In this paper, we examine information sharing between the own-brand retailer and its seller. When the retailer and the seller agree on an information-sharing contract (i.e., sharing arrangement),the seller has access to the shared information to estimate market demand. Following prior literature, wefirst explore a case where the seller’s ability to interpret the shared data is equivalent to the retailer’s (i.e.,knowledgeable). Then we consider another case where the seller is unaware of her false belief about the shared data (i.e., unknowledgeable). The seller’s lack of information and analysis proficiency is not only practical in online businesses but consistent with the literature. We find that the seller always prefers the sharing arrangement, but the retailer’s incentive for sharing varies. With the knowledgeable seller, the retailer always prefers sharing under the agency mode (i.e., pricing decision is delegated to the seller) but non-sharing under the reselling mode (i.e., a typical wholesale contract). With the unknowledgeable seller (e.g., overconfident seller), however, the seller’s misinterpretation can reverse the retailer’s sharing decision. Under the agency mode, sharing is only optimal for the retailer when the degree of her overconfidence is negligible and the competition, relative to the cooperation, with the seller, prevails. In contrast, the retailer shares under thereselling mode only if the overconfidence is significant, where the negative double marginalization is weakened but the relative advantage of its own product is strengthened. We further discuss information-sharing with side payments and preventive policies.
Keywords: Online Marketplace, Market Uncertainty, Information Sharing, Agency, Reselling
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