The platform's store-brand supplier selection and quality information provision decisions

Abstract

We investigate the strategies of an e-commerce platform (EP), selecting a supplier for its store brand and determining whether to provide information that can reduce consumers’ uncertainty about their quality preferences. The EP can choose either a non-competing outside supplier or a competing inside supplier that sells a high-quality brand product through the EP. Consumers have complete knowledge about the qualities of the two products, although they remain uncertain about which product best meets their need. We find that the EP has an incentive to disclose information when the ratio of the cost per unit quality of the inside supplier's product relative to that of the EP's own-brand product is high, and it prefers the inside supplier when this ratio is low. We identify the EP's optimal strategy profile. Specifically, when this ratio is low, the EP selects the inside supplier and refrains from disclosing information when the ratio is sufficiently low. However, when the ratio is high, the EP selects the outside supplier and discloses information only if the ratio is sufficiently high. We also find that market competition softens both when the EP selects the inside supplier and when it discloses information.