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

Author

Listed:
  • Jiping Gao

    (University of Science and Technology of China)

  • Gongbing Bi

    (University of Science and Technology of China)

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.

Suggested Citation

  • Jiping Gao & Gongbing Bi, 2023. "Exclusivity decision of platforms’ first-party products in a competitive market," Information Technology and Management, Springer, vol. 24(4), pages 353-366, December.
    • Handle: RePEc:spr:infotm:v:24:y:2023:i:4:d:10.1007_s10799-021-00345-5
    DOI: 10.1007/s10799-021-00345-5
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