Applying a platform to expand sales

Wenche Wang, Fan Li and Zelong Yi

Journal of the Operational Research Society, 2021, vol. 72, issue 4, 837-852

Abstract: Manufacturers often try to expand sales by making their products available on an intermediatory platform. This article examines fundamental issues related to firms’ decisions to use a platform. Due to favorable services that are provided by the platform, consumers would rather purchase from the platform than directly from the firms. In the absence of a platform, some would purchase from the firms while others would make no purchase. With a platform, on the other hand, strong-preference consumers will continue to purchase from the firms, since they are not within the platform’s target market; low-preference consumers will continue to make no purchase; only moderate-preference consumers will switch from direct purchase to platform purchase. Moreover, the firm-direct sales prices are greater than the platform sales price, so the firms take advantage of strong-preference consumers to compensate for the fee of the platform. We also show that the optimal size of the platform is related to consumers’ evaluation of the products, the platform characteristics, and consumers’ disutility of buying a non-ideal product.

Date: 2021
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Citations: View citations in EconPapers (3)

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DOI: 10.1080/01605682.2019.1700193

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