The effects of information on competition on a hybrid retail platform

Many online platforms now operate in a hybrid mode, in which they act as intermediaries between manufacturers and consumers (agency mode) and resell products (reseller mode). Some hybrid platforms offer both the agency and reseller modes to a manufacturer, so that the same product can be sold through both modes simultaneously. In addition, online shopping brings uncertainty, rendering consumers dependent on information such as product descriptions when making purchase decisions. This paper aims to explore price and service level competition on a hybrid retail platform and the influence of the information displayed on the platform (collectively, “platform information”) on such competition. We establish a model to investigate the equilibrium price and service level in the agency and reseller modes. Next, we analyze how platform information influences equilibrium. We find that the service level in the reseller mode is always higher than that in the agency mode and that the platform owner’s (“e-tailer’s”) profit is higher when the information displayed in the agency mode significantly differs from the information displayed in the reseller mode. The precision of the information about quality and match has opposite effects on competition and profits. For example, an increase in the precision of the match information decreases competition and increases the profits of both the manufacturer and the e-tailer. Surprisingly, we find that both the manufacturer and the e-tailer benefit when inconsistent information is provided in the two modes (i.e., it creates a win–win situation). This paper has implications for managers seeking to understand competition between the agency mode and the reseller mode and to properly manage their platform information.