Optimal Channel Strategy of Luxury Brands in the Presence of Online Marketplace and Copycats

Forthcoming at the European Journal of Operational Research

30 Pages Posted: 8 Dec 2022

See all articles by Sarah Yini Gao

Sarah Yini Gao

Singapore Management University - Lee Kong Chian School of Business

Wei Shi Lim

National University of Singapore

Ziqiu Ye

University of International Business and Economics

Date Written: November 28, 2022

Abstract

The strategic interaction between authentic luxury brands and their copycats has evolved since the proliferation of online marketplaces. Using a game-theoretic framework, we examine how an authentic luxury brand, observing the strategic behavior of its competing copycats, should make its optimal entry decision to a third-party online marketplace. Our findings reveal that the authentic luxury brand does not sell on the online marketplace when either the quality or the physical resemblance of the copycat to the authentic luxury brand is high. This contributes to the related literature by offering an explanation for the increasing quality of copycats amid the e-commerce boom — improving the quality of the copycat can deter the authentic luxury brand from selling on the online marketplace. Furthermore, by comparing our equilibrium outcome with the benchmark case where the authentic luxury brand does not consider selling on the online marketplace at all, we show that the authentic luxury brand’s potential entry to the online marketplace is sufficient to induce the copycat to improve its quality and lower its price, thereby improving the aggregate consumer surplus. In addition, the online marketplace can always be better off allowing the entry of the copycat if there is no external enforcement against copycats. We show that our key results are valid in various extensions and they offer multiple managerial implications.

Keywords: supply chain management, conspicuous consumption, copycats, online marketplace, channel strategy

Suggested Citation

Gao, Sarah Yini and Lim, Wei Shi and Ye, Ziqiu, Optimal Channel Strategy of Luxury Brands in the Presence of Online Marketplace and Copycats (November 28, 2022). Forthcoming at the European Journal of Operational Research, Available at SSRN: https://ssrn.com/abstract=4289205

Sarah Yini Gao

Singapore Management University - Lee Kong Chian School of Business ( email )

469 Bukit Timah Road
Singapore 912409
Singapore

Wei Shi Lim

National University of Singapore ( email )

1 Business Link
Singapore, 117592
Singapore

Ziqiu Ye (Contact Author)

University of International Business and Economics ( email )

10 East Huixin Street
Chaoyang District
Beijing, 100029
China

HOME PAGE: http://ziqiuye.weebly.com/

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

Paper statistics

Downloads
62
Abstract Views
223
Rank
625,504
PlumX Metrics