Story by Margie Peterson
Image by Shutterstock/The Simple Stock
Haoyan Sun studies online retailers selling on large e-commerce platforms.
For small online retailers who sell on giant e-commerce platforms like Amazon, attracting shoppers might seem like a struggle.
That lopsided dynamic drove Lehigh Business’ Haoyan Sun, assistant professor of DATA, to team up with Eric Fang, professor of marketing, and Beibei Dong, associate professor of marketing, to study whether third-party retailers who sell on mammoth platforms are harmed or helped by the platform’s own advertising and price promotion of competing types of products.
The researchers obtained data from one of the largest e-commerce platforms in China—one comparable to Amazon—that uses a hybrid retail model. The model enables the platform to sell directly to consumers, but also permits third-party retailers to peddle goods while paying the platform a commission. The team tracked groceries and other fast-moving consumer goods being marketed by 46 sellers over 240 days. Sun says they agreed not to disclose the name of the platform in exchange for access to the data.
“Initially, the platform was just hosting the sellers,” Sun says. “The platform owner entered the marketplace and we waited a year to begin collecting data. Once the platform owner was competing directly with third-party retailers, we wanted to learn what the consequences were.”
Would there be crowding-out effects from the platform’s entry into the marketplace or positive spillover?
The researchers found that the platform owner’s advertising hurt retailers by crowding out their promotions and cutting into their sales. That was especially true for the smallest retailers.
“It was a significant effect,” Sun reports. “Smaller retailers are more vulnerable. They benefit less from competition.”
But the researchers also found that the platform’s promotions for its own prices had a positive effect on the third-party retailers’ sales.
Sun explains, if an Amazon-like platform is selling a product directly to consumers and it posts a promotion based on the price, that can help the third-party retailers who sell the same type of product.
“It benefits them because more consumers are coming to this platform,” Sun says. “Consumers are attracted by the price promotion. Consumers may not only purchase these products that are promoted by the platform owner, they might also browse the products offered by other sellers and that spillover might increase the demand for the other sellers. That’s a positive effect.”
The researchers found that larger retailers benefit more from spillover than smaller ones.
“Third-party retailers tend to use price promotion to respond to the platform owner’s strategy,” Suns says.
Sun hopes the study provides guidance to platform owners and third-party retailers in their symbiotic relationship, or “coopetition” in which the platform and the third-party retailers cooperate and compete to get ahead. The research could also inform government policy makers who might regulate online commerce.
“Smaller retailers are more vulnerable,” explains Sun. “They benefit less from the ‘coopetition.’ Large retailers benefit more from the coopetition relationship, thanks to the spillover.
Why it Matters
Third-party retailers' performance is inherently important to the ecosystem of large platforms. Understanding what affects their performance provides guidance on how to help both platforms and third-party retailers survive and prosper.