The One-Party Versus Third-Party Platform Conundrum: How Can Brands Thrive?

Abstract

Online platforms aggregating brands, such as Amazon and Alibaba's Tmall, have emerged as powerful intermediaries for brands. Although these platforms offer unprecedented access to consumers, the platform controls this access. Thus, concerns are raised about how these platforms interfere with the brand experience and, ultimately, performance. The question of how brands can govern their platform operations more effectively thus arises. There are essentially two types of governance models: a one-party (1P) marketplace (wholesaling to the platform) and a third-party (3P) marketplace (selling directly to the consumer on the platform). However, it is unclear how 1P or 3P operations affect brand performance. To that extent, the authors study the market share implications of operations on JD.com, a 1P platform, and Tmall, a 3P platform, for almost 2,000 brands. On average, 1P operations decrease shares, whereas 3P operations lift shares. These changes depend on different brand-specific moderators. For 1P operations, share drops are more substantial for brands that are unable to elicit a trustworthy consumer relationship, when alternative brands abound and rogue-seller activities are severe in the product category. The 3P share lifts, in contrast, are more substantial for premium-priced, nonleading brands with prior direct-to-consumer experience.