Channel Expansion Strategies in the Presence of Asymmetric Competitive Retail Platforms

Abstract

The success of online retail platforms with hybrid reselling and agency selling has been well documented. Recently, manufacturers are expanding channels in competitive retail platforms (such as JingDong and Tmall) on the basis of reselling. Considering two asymmetric competitive retail platforms, we investigate the incentive for channel expansion under various strategies: agency selling in the incumbent platform, agency selling, or reselling in the asymmetric competing platform. Our analysis shows that the manufacturer's channel expansion strategies depend on the market potential ratio, competition intensity, and agency channel costs. Manufacturers prefer channel expansion when agency channel costs are small or the market potential ratio is above a threshold. Interestingly, even the competing platform has a smaller market potential, manufacturers may still prefer to expand the agency selling channel in the competing platform rather than the incumbent platform. When the market potential ratio is large, under low agency channel costs, the impact of competition on channel expansion strategies is nonmonotonic, and moderate competition motivates manufacturers to expand the channel by reselling rather than agency selling in the competing platform. Furthermore, we find moderate slotting fee or commission rate could make manufacturers and the incumbent platform better off when the market potential ratio is small.