Selling exclusively or widely? Optimal strategic responses under online platform power asymmetry and competition

Abstract We study an e‐commerce marketplace consisting of a third‐party seller, a dominant platform, and a competing platform. The seller pays referral fees to sell on the platforms. The dominant platform has a larger consumer base and offers an exclusive program. We formulate a game theoretic model to study strategic responses for all parties involved. The research questions are: How would the seller optimally choose between the two selling options: “go exclusive” with the dominant platform or “go wide” with both the dominant and the competing platforms? How would the dominant platform optimally adjust the referral fee in the exclusive program? How would the competing platform optimally discount the referral fee to compete with the dominant platform? We find that it is optimal for the seller to sell exclusively on the dominant platform if the referral fee adjustment in the exclusive program is lower than a threshold value. For the dominant platform, we identify the optimal value of the referral fee adjustment so that the seller can be enticed to choose the selling strategy that benefits the dominant platform as well. For the competing platform, we prove that there exists an optimal value of the referral fee discount. We also identify the market conditions that it is optimal for the competing platform to discount the referral fee or to set the referral fee the same as the dominant platform. We contribute to the e‐commerce literature by studying exclusive selling and platform competition while incorporating base demand asymmetry and referral fee asymmetry.