Profitability of private brands of e-commerce platforms offering competing national brands under agency selling

This paper investigates the impact of a private brand (PB) introduction by an e-commerce platform. Contrary to previous research, the platform allows competing manufacturers to sell their national brands (NBs) directly to consumers for an agency fee. Our game-theoretic analysis allows us to derive the following key insights. The levels of competition between NBs, and NBs and the PB, as well as the agency fees manufacturers pay to the platform are critical in determining the profitability of introducing PBs. Introducing a PB may not benefit the platform, especially when the PB and the NBs are asymmetric and are competing closely. However, when the platform can profit by introducing a PB, it is at the expense of NB manufacturers as they are pressured to reduce their prices and also experience a decline in sales. Finally, introducing PBs enhances consumer welfare by reducing NB prices and expanding consumer demand in the product category.