Less is more? Channel separation to mitigate triple competition and combat copycats in agency e-commerce

Abstract

In practice, agency e-commerce, also known as e-marketplace, faces the challenges of copycat products with nearly identical “consumption quality” to genuine products. The e-marketplace may lack incentives to combat copycat sellers, leading many brands to adopt a novel “Channel Separation” strategy to protect their brand image. Under this strategy, although the brand seems to lose profit from stopping product sales in the e-marketplace, copycat products will be successfully revealed and the channel competition will be softened. We then investigate the brand's strategy choice by examining the tradeoffs among three factors: triple competition under a co-existing strategy (the brand decides co-selling with the copycat sellers in the e-marketplace), dual-channel competition under a channel separation strategy (the brand sells genuine products exclusively through the self-operated channel), and the value of revealing copycat products to eliminate their free-riding of brand image. Our findings indicate that a high agency commission rate and/or intensified channel competition may lead to a surge in copycat product sales under the co-existing strategy. Only the brand with a significant image advantage could benefit from channel separation. Interestingly, our results suggest that copycat sellers and the e-marketplace could also benefit from the brand's channel separation when channel competition is adequately alleviated and the brand's image advantage is not very pronounced.