Platform switching with manufacturer encroachment under online retailing and dual-purpose organizations

This study examines the strategic interaction between an incumbent manufacturer’s agency encroachment and an online platform’s external switching in a platform supply chain. The dual-purpose platform, which considers both profit and consumer surplus, can switch to an outside manufacturer when facing the agency encroachment threat of the incumbent manufacturer. We consider the equilibrium strategy for the for-profit and dual-purpose platforms, to explore the impact of the dual-purpose concern, switching option, and agency encroachment on the firms’ profits and consumer surplus. Several interesting findings emerge from this study. First, unlike the for-profit platform, the dual-purpose platform’s switching strategy exhibits a non-trivial pattern for the switching cost. A high dual-purpose concern increases the platform’s switching motivation but inhibits the manufacturer’s agency encroachment incentive. Second, agency encroachment may benefit the platform owing to the additional commission income, and switching may hurt the platform. Importantly, the dual-purpose concern can positively affect the platform, which occurs when the agency encroachment is inhibited by dual purpose or switching. However, the pursuit of consumer surplus does not necessarily benefit consumers. Moreover, the incumbent manufacturer does not favor the dual-purpose platform scenario, particularly under the condition of high switching costs and low commissions. Finally, the extensions indicate that the incumbent manufacturer’s dual-purpose concern may show an opposite effect on the wholesale price and direct sales volume, thereby enhancing the incumbent manufacturer’s agency encroachment incentive; and imperfect product substitution weakens the dual-purpose platform’s ordering motivation.