Research on the Product Positioning Strategy of the Independent Seller under Platform Encroachment

Abstract

The platform owner promotes the transaction between independent sellers and consumers, while entering the marketplace of independent sellers to compete with them for consumers. Faced with the threat of platform encroachment, independent sellers establish their own competitive advantages through ex ante category quality selection and ex post product differentiation. This study discusses how independent sellers should determine product positioning (including vertical and horizontal dimensions) in the face of platform category encroachment. We establish a game model and determine the best strategy. In addition, we develop a multi-agent model to reach conclusions for more complex market situations. We show that when the consumer’s platform preference is low, the independent seller is willing to locate in the high-end product market; otherwise, the independent seller is willing to locate in the low-end product market. In a competitive environment, when consumers’ ideal preferences are concentrated, the independent seller vertically positions in the low-end product market and horizontally positions close to the concentrated area of consumers’ ideal preferences. Similarly, the platform owner is more likely to encroach on the low-end product market. However, the independent seller positions in the high-end product market with greater horizontal differentiation, and the platform owner’s motivation to encroach is weakened.