The implications of supplier encroachment via an online platform

Abstract

E-commerce provides suppliers with the flexibility to operate an online arm via a platform in addition to their pre-existing physical stores. Although such supplier encroachment is becoming increasingly prevalent in e-commerce markets, the literature on supplier encroachment traditionally assumes that suppliers sell products to consumers directly and argues that supplier encroachment can mitigate double marginalisation problems that can secure Pareto improvements. This paper narrows this gap by investigating the implications of the supplier encroachment with an online platform under two scenarios (i.e., the platform owner forgoing or retaining its entry options). A central result obtained is that, unlike supplier-owned direct channels and in addition to the win win outcomes for the supplier and the traditional retailer, supplier encroachment with an online platform may also lead to win lose and lose outcomes. Furthermore, when the platform owner retains its entry option, such encroachment is always detrimental for the traditional retailer but beneficial for the supplier.