Exclusivity decision of platforms’ first-party products in a competitive market

Jiping Gao () and Gongbing Bi ()
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Jiping Gao: University of Science and Technology of China
Gongbing Bi: University of Science and Technology of China

Information Technology and Management, 2023, vol. 24, issue 4, No 3, 353-366

Abstract: Abstract Product exclusivity is a well-known strategy adopted by agencies to attract buyers. Although some platform firms develop first-party products to improve competitiveness, we show that they do not necessarily benefit from the exclusivity of these products in a competitive market. Platforms may sell their first-party products on their competitive platforms, which we call the non-exclusive strategy. The impact of the non-exclusive strategy on firms’ profits is the result of an interaction between a competition effect and a demand effect. The competition effect is that the non-exclusive strategy reduces the differentiation between firms, and the investment strategy on the first-party product has no impact on the price competition between firms. The competition effect causes firms to intensify price competition and decrease the investment for their first-party product. The demand effect is that, in the presence of the non-exclusive strategy, the firm can obtain a sale profit from the first-party products in the competitive platform. The demand effect causes firms to diminish price competition and increase investments in first-party products. As a result of these two effects, we find that firms are more likely to benefit from the exclusivity of the first-party products only when the unit misfit cost is sufficiently high. We also find that firms implementing the non-exclusivity strategy will reduce the investment in the first-party product if the consumers’ performance sensitivity is low. When platforms develop the targeted investment in first-party products, we can also see that the exclusivity of the first-party product is not always beneficial to the platform.

Keywords: Two-sided market; Two-sided platform; Platform competition; Product exclusivity; First-party product; Product investment (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s10799-021-00345-5

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