To fight or not? product introduction and channel selection in the presence of a platform’s private label

Abstract

Platform retailers’ private labels have recently flourished, threatening the business of traditional national brand (NB) sellers. To fight against these platforms, some NB sellers introduce new products as low-quality substitutes through marketplace channels or exclusive channels. This raises a question: Considering the existence of a platform’s private label, how does an NB seller’s fight/no-fight strategy affect the co-opetition relationship between the two players? In this paper, we construct a game-theoretic model to explore the optimal response strategy of the NB seller. Our study shows that the interaction between the expansion effect and the cannibalization effect can lead to outcomes in which the no-fight strategy benefits the NB seller and the fight strategy benefits the platform. We find that for the NB seller, introducing a new low-quality product through a marketplace channel may be more profitable than doing so through an exclusive channel, particularly when the expansion effect is large and the quality difference is small. We also find that new product introduction as a fight strategy may cause a win–win situation for the NB seller and the platform when done through a marketplace channel with a large expansion effect. An intriguing result of the extension is that the NB seller may switch from the marketplace channel to the exclusive channel as the operating cost in the exclusive channel increases. This work provides valuable managerial insights for NB sellers in response to strategic competition with platforms’ private labels.