Optimal homing policy of the manufacturer facing competing platforms: the effect of selling formats

Abstract

This paper explores the optimal homing policy of a manufacturer who sells products through two competing platforms: a traditional online platform and a social commerce platform. The social platform can choose to operate with reselling or agency selling format. Through analysis, we first find that the manufacturer’s optimal decision regarding whether to single- or multi-home and the social platform’s optimal decision regarding whether to adopt reselling or agency selling format depend mainly on the intensity of the downstream competition and the platforms’ market sizes. Specifically, the manufacturer prefers single-homing if the competition intensity is relatively low and the traditional platform’s market size is relatively large. When the competition intensity increases (decreases), the agency selling (reselling) format is always the social platform’s preferred choice. Next, we find that the manufacturer is less likely to choose multi-homing (single-homing) and the social platform is more likely to select agency selling (reselling) format when the traditional platform serves as a marketplace rather than a reseller. Finally, numerical studies show that the manufacturer’s and the platforms’ preferences for selling modes are always misaligned. However, an all-win situation is achieved with the pure agency selling mode when the competition intensity is relatively high.

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