Store brand encroachment and manufacturer innovation under different commission design

Online platforms have begun to launch their own store brands while selling manufacturers’ national brands. Recognising that manufacturers often invest in product innovation, platforms have incentives to mimic and merger manufacturers’ successful innovations. Given that such free-riding behaviour may stifle innovation, this has raised serious concerns. This study develops game-theoretic game models to investigate whether store brand encroachment is harmful for manufacturers’ innovation and examine the implications for supply chain members under different commission design. Moreover, by endogenizing the platform’s store band encroachment decision, our model explicitly distinguishes between the feigning encroachment (i.e., threat) and the substantive encroachment (i.e., competition). Results show that, store brand encroachment always reduces manufacturer’s innovation level under exogenous commission scenario, while under endogenous commission scenario, store brand encroachment can motivate the manufacturer to strengthen innovation when the competition level is low and the platform introduces high-quality products. No matter whether the commission fee is exogenous or endogenous, the manufacturer facing the threat of encroachment will increase the innovation level to pre-empt the store brand encroachment as competition intensifies. We also find that, store brand encroachment definitely does harm to the manufacturer and it is detrimental to the platform to some extent under exogenous commission scenario, while under endogenous commission scenario, store brand encroachment will create a win-win situation for the two players under some conditions. The impacts of store brand encroachment on consumer and social welfare depend on the competition level and the quality of store brand products.