Contract choice and equilibrium: whether and how to open platform to competitor for the dominant manufacturer?

Purpose Motivated by the observation that some national brand manufacturers have established exclusive selling platforms for direct consumer sales and have even invited competitors to join, this paper aims to investigate whether and how the dominant manufacturer opens platform, fixed fee (F) or advertising service (A) contract. Design/methodology/approach This paper develops a Stackelberg game-theoretic model consisting of a dominant manufacturer owning an exclusive selling platform and a competitive yet less recognized manufacturer directly selling goods on website channel. Firstly, the authors analyze the equilibrium outcomes for all possible strategies, including purely competition, opening platform through contract A or F. Secondly, the preference on platform openness (joining) for the dominant (less-competitive) firm is obtained by comparing the profit of each scenario. Finally, considering the competitor may reject joining the platform, the authors examine how the contract choice interacts with the competitor’s response and analyze the overall system equilibrium. Findings The results of this study indicate that when the market base is not large, and the bar-gaining power of platform is significant, the competitor prefers contract F, leading to Pareto improvement. With the increase in market base, the competitor becomes only willing to join the platform through contract A if the bargaining power is comparable, compelling the dominant manufacturer to concede; otherwise, it falls into worse competition. Nevertheless, a Prisoner’s Dilemma appears when the competitor possesses more influential bargaining power, leading the dominant manufacturer to open platform through contract F. Such opposite preferences on contract generate the failure of cooperation and competition becoming equilibrium. Originality/value This paper concentrates on the innovative business mode wherein powerful national brand manufacturers construct their selling platforms and act as sellers and is a complement for platform openness and cooperation between firms through sharing selling channel. The research can provide guidance on how manufacturers who own exclusive selling platform strategically choose channel coopetition modes based on competitors’ response to join, thereby improving performance.