Abstract

Online platforms have become an important channel for sellers to reach potential customers. Although small sellers rely on platforms as their main market channel, large sellers, who own direct channels and loyal customer bases, may not have incentives to sell through platforms. We develop a game-theoretic model with an online platform and two sellers that differ in size and sell substitutable products. Comparing equilibria under cooperation and non-cooperation cases, we find that high-value products might be sold at a lower price under non-cooperation, but cooperation between the large seller and the platform can correct such product value-price mismatch. More importantly, a loyal customer base and commission rate influence the platform’s and large seller’s unilateral or joint (with transfer payment) incentives to cooperate. The large seller’s incentives to cooperate can be explained by expanded market coverage or reduced price competition. As its direct channel advantage increases, the large seller’s incentive to cooperate first diminishes, driven by the cannibalization effect resulting from price consistency, but then is enhanced due to the market expansion effect. Because of the aggressive response of the small seller, both the platform and the large seller may lose incentive to cooperate as the platform’s loyal customer segment expands. Cooperation, however, can reduce the price competition when the commission rate is moderate and the platform’s loyal customer segment is small; thus, a win-win-win outcome, benefiting the platform and the two sellers, can arise.

DOI

10.17705/1jais.00935

Download

Share

COinS