Third-party sellers’ product entry strategy and its sales impact on a hybrid retail platform

Abstract

• An empirical model estimates third-party sellers’ product entry strategy and its sales impact on a hybrid retail platform. • Third-party sellers prefer to target products with low prices, high demand and less operating costs. • Third-party sellers’ entry harms the platform owner’s sales but benefits the platform’s overall sales. • Large third-party sellers’ entry has a stronger negative effect on the platform owner’s sales. The platform owner and third-party sellers in a hybrid retail platform cooperate to generate consumer value and improve the platform’s overall competitiveness. The platform owner is generally believed to be more powerful and significantly impacts third-party sellers’ welfare. However, as these third-party sellers expand their businesses to survive on the platform, many have started to enter the platform owner’s product markets to increase sales. Our research develops an empirical framework to address the issue that what kinds of product are more suitable for third-party sellers to enter and how does this entry affect the platform. Using a logit regression model, a combination of propensity score matching and difference-in-difference model, our results reveal that third-party sellers are more likely to target products with low prices, high demand and less operating costs. Moreover, third-party sellers’ entry significantly decreases the platform owner’s sales but increases the platform’s overall sales. Furthermore, large third-party sellers’ entry has a stronger negative effect on the platform owner’s sales. These findings provide crucial theoretical and managerial implications for online retail platform operations.