The Impact of Platform’s Information Sharing on Manufacturer Encroachment and Selling Format Decision

Abstract

Motivated by recent practice observations, we consider an incumbent manufacturer who has an existing wholesale contract with an e-commerce platform, which the latter sells as a private label product in its online marketplace. In this context, the manufacturer launches its follower product, which will coexist alongside the private label product on the platform. We study the interplay between the manufacturer’s choice of selling format (i.e., reselling or agency) and how this choice influences the platform’s decision to share (or not to share) demand information with the manufacturer (i.e., information sharing policy). In particular, we examine how the platform’s information-sharing policy, depending on its perceived information accuracy, impacts the manufacturer’s selling format decision. Using game-theoretic analyses, we find that under low perceived information accuracy, the manufacturer adopts the agency format when the commission rate is low but the reselling format when the commission rate is high. However, the platform withholds the demand information. More interestingly, when the commission rate and perceived information accuracy are both high, the manufacturer switches from the reselling to the agency format and this induces the platform to share demand information. This benefits both the manufacturer and the platform with the Pareto-improving zone expanding when perceived information accuracy is at least moderate but shrinking when the market size potential of the follower product increases. Ultimately, both parties can benefit from information sharing once in business and when the commission rate is high. The platform should also invest in greater information accuracy in such conditions.