Private Labels and Wholesale Contracts in Online Marketplaces

Abstract This game-theoretic study features an online intermediary that hosts third-party retailers on its marketplace platform and consumers who choose among the varieties of a differentiated product. The intermediary can enter the market as a seller either by offering a manufacturer—who may be a third-party retailer or an independent firm—the opportunity to become its wholesale supplier or by licensing the manufacturer’s technology to introduce a private label product. Accounting for feasibility, I find that among the four possible contractual relationships, the intermediary will opt for a private-label relationship with an independent firm. However, if forming a contractual relationship with an independent firm requires additional effort from the intermediary, it will choose a wholesale contract with a third-party retailer when the platform fee falls within an intermediate range and a private label relationship with a third-party retailer otherwise.