When and How Should a Retailer Use Third-Party Platform Channels? The Impact of Spillover Effects

Abstract With the increasing popularity of third-party platforms, some retailers have used them to sell their products in addition to their own online and offline channels, while others retailers have not. An important pair of questions thus arise: should a retailer that has its own online and offline channels sell through a third-party platform? If so, which selling format should it adopt? This study considers the interaction between offline channel and internet channels (including online channel and third-party platform channel) and establishes a model with a spillover effect that can act in two directions: from offline channel to internet channels (O2I) or from internet channels to offline channel (I2O). We explore three different supply chain structures/scenarios: a dual-channel structure (D); a triple-channel structure: reselling format (MR); and a triple-channel structure: agency selling format (MA). Using a game-theoretic model, we investigate whether the retailer should use a third-party platform and its selling format preference, and further explore the impact of the direction of the spillover effect. Our theoretical analysis shows that when the channel competition is moderate, the region in which the retailer uses the third-party platform first increases and then decreases as the spillover effect increases. Given a reasonable agency fee, when the channel competition is medium, the retailer is more likely to prefer MR as the O2I spillover effect increases, but to prefer MA as the I2O spillover effect increases. We also find that two Pareto zones exist, that is, the retailer and third-party platform prefer the same selling format in some cases, either MR or MA.