Cooperation or coopetition? Online platforms’ private label products encroachment and brand manufacturers’ pricing model selection

Purpose This study aims to explore the dynamics between the brand manufacturer’s revenue model choice and the platform’s private label product entry strategy, specifically, (1) Under the wholesale and agency models, when should the platform introduce its private label product to compete with the manufacturer? (2) Facing the potential threat of the platform’s entry, how should the manufacturer choose between the wholesale and agency models? (3) How does the platform’s entry strategy affect the manufacturer’s price decisions and demand? (4) What are the implications of the strategic interaction between the manufacturer’s model selection and the platform’s encroachment on social welfare and consumer surplus? Design/methodology/approach This study develops a multistage game model consisting of a manufacturer, a platform and consumers. The model describes the strategic interaction between the manufacturer and the platform, where the manufacturer first chooses one of the revenue models from the agency model and the wholesale model, followed by the platform’s decision whether to offer its own products to enter the competition, after which the two parties set the price of their products to compete on price according to their strategies, then the consumers make purchase decisions based on the principle of utility maximization. Findings For the platform, to not hurt its profitability in the manufacturer channel with too much competition, lower social utility sensitivity and lower similarity of product imitation rather favor platform entry. Platform entry affects manufacturers’ retail prices and demand differently across different revenue models. Interestingly, if the social utility sensitivity and imitation similarity are moderate, when the commissions extracted by the platform are low, manufacturers still have the incentive to adopt the wholesale model rather than the agency model. In addition, platform entry into competition increases consumer surplus and social welfare only when consumer sensitivity to social utility is low. Originality/value The research model innovatively describes the strategic interaction between the manufacturer and the platform; to more accurately portray the consumer demand model, this model also introduces the parameters of the similarity of the platform’s products to the products of the manufacturer, as well as the social utility sensitivity of consumers. Conclusions are drawn on the choice of platform entry strategy versus the choice of revenue model for manufacturers. Relevant managerial insights are provided for both platforms and manufacturers, which partially explains the existing market situation.