Voluntary investment strategy of customer-to-manufacturer e-commerce platform under manufacturer encroachment

Consumer-to-Manufacturer (C2M) e-commerce platforms increasingly invest in digital technologies to help upstream manufacturers lower unit production costs or enhance product quality. However, such investments may be adjusted strategically when manufacturers threaten to encroach on downstream markets. This study examines the interplay between the C2M platform’s investment and the upstream manufacturer’s encroachment choice. We model a supply chain comprising a single manufacturer and a C2M platform; the manufacturer supplies products to the C2M platform for resale, and the C2M platform can invest to reduce the manufacturer’s unit production costs or improve product quality. Moreover, the manufacturer can sell directly to consumers either through the C2M platform or a third-party platform by paying commissions. Our analysis reveals that, in the absence of investment, the manufacturer consistently prefers to encroach through a third-party platform—a strategy that is unfavourable for the C2M platform. Nevertheless, the C2M platform can leverage investments to deter manufacturer encroachment strategically through a third-party platform, potentially increasing its profit and achieving joint profit maximisation. Additionally, such investments may prompt the manufacturer to abandon encroachment, resulting in a higher wholesale price that could reduce the platform’s profit. We extend our model to account for general investment efficiency, imperfect platform competition, investment cost-sharing, and quality-related production costs, confirming the robustness and offering further insights. Our research provides guidance for C2M platforms and manufacturers on coordinating investment strategies within their supply chains.