Store brand introduction under platform financing and competition

Abstract

Motivated by the prevalence of platform store brand entry, this paper investigates how a platform cooperates strategically with a capital-constrained manufacturer possessing its national brand in financing and contract manufacturing for the store brand. We consider four scenarios to analyse this problem: producing for the national brand under bank financing (MB) or platform financing (MP) and producing for both brands under bank financing (BB) or platform financing (BP). Intuition may suggest that the store brand puts the national brand at risk of a reduced sales price due to brand competition. However, we find that producing for the store brand can assist the manufacturer in raising sales prices when the unit production cost is small (large) and the competitive intensity is high (low) Interestingly, even when facing a higher platform interest rate than that under bank financing, the manufacturer prefers Scenario BP if the unit production cost is high and competitive intensity becomes high, because the interplay between selling and financing roles induces the platform to balance overall revenue, which may alleviate price competition and achieve a win–win outcome. Furthermore, as competitive intensity increases, Scenario BB (or BP) is more likely to become the equilibrium result; otherwise, Scenario MB (or MP) is the equilibrium result. Finally, considering the endogenous interest rate, there is a U-shaped strategy equilibrium for the platform to promote platform financing under store brand introduction. Our findings provide insights on how to manage store brand introduction by incorporating financing policies under a co-opetitive supply chain.