Strategic introduction of private brand in the online retail platform

Abstract

Private brands are frequently introduced by online platforms. Motivated by this phenomenon, this study aims to examine the strategic introduction of private brand involving the selling format choice in the online retail platform circumstance. The retail platform determines the private label introduction as well as the selling formats, i.e., reselling or agency selling. We develop a game-theoretic model to examine the private brand introduction problem for the online retail platform. The results indicate that when the potential market for private brand is moderate, the introduction of a private brand will interact with the choice of selling format. Clearly, it makes sense for the platform to exclude or include the private brand strategy based on the size of the potential market when it is extremely small versus relatively large. However, in the case of a medium-sized market for private brands, the platform’s private brand introduction and selling format will be determined by both the cost of order fulfillment and the intensity of competition between national brands and private brands. This study contributes to uncovering under what conditions an online retail platform can be beneficial by introducing a private brand.