The interactions between online platform’s store brand introduction and manufacturer’s innovation strategies: Reselling vs. agency modes

Abstract

Motivated by the prevalent entry of store brands (SBs) and its potential impact on national brands (NBs) in the supply chain, this study develops game-theoretic models to examine the strategic interactions between the platform’s SB introduction strategy and the NB manufacturer’s innovative strategies under both the reselling and agency modes. We find that first, influenced by the manufacturer’s innovation strategy, the platform should not introduce an SB, even if the cost of doing so is negligible under certain conditions. Second, the manufacturer’s optimal countermeasure to the introduction of SB depends on various factors. Specifically, when consumer acceptance of SB is low, the manufacturer should upgrade the existing NB products if her innovation efficiency in developing new products is low under the reselling mode or if consumers’ preference for the newly developed NB products is low under the agency mode. In addition, the manufacturer should invest in developing a new category of NB products if both her innovation efficiency and consumers’ preference for that are sufficiently high, regardless of the operation mode. In this scenario, Pareto optimality is achieved, and the manufacturer can even benefit from the entry of an SB. Moreover, unlike the reselling mode, where the manufacturer’s optimal response to the SB is always to implement innovative measures, under the agency mode, the platform should employ a no-innovation strategy if consumers’ preference for SB products is high and both the commission rate and market value of the new NB products are low. Furthermore, by clarifying the interplay between the strategies of these two players, we find that the manufacturer can successfully prevent the platform from introducing an SB by upgrading the existing NB products under the agency mode, as long as certain conditions are met, but cannot successfully do so under the reselling mode.