Less Is More? Channel Separation to Mitigate Triple Competition and Combat Copycats in Agency E-Commerce

In practice, agency e-commerce is also referred to as e-marketplace, where copycats that have nearly identical “consumption quality” with the genuine products are commonly observed. The e-marketplace may not have incentives to combat copycats, so we observe many brands are using a truly new strategy—“Channel Separation” to protect their brand image. Under this strategy, although the brands stop the sales in the e-marketplace which seems lose profit, the copycats will be successfully revealed and the channel competition will be softened. We then study the brand’s strategy choice by formulating the brands’ trade-offs among triple competition under co-existing strategy (the brand decides co-selling with the copycats in the e-marketplace), dual channel competition under channel separation strategy (the brand decides selling in the self-operated channel only), and the value of revealing the copycats to terminate their free-riding of the brand image. We find that under co-existing strategy, a high agency commission rate and/or the intensified channel competition will induce more rampant copycat sales. Only the brand with a significant image advantage could benefit from channel separation strategy. Otherwise, co-selling with the copycats and pooling the consumers’ consumption perception will be the equilibrium strategy. Interestingly, we show that the copycat and the e-marketplace could also benefit from the brand’s channel separation, when the channel competition is sufficiently mitigated and the brand’s image advantage is not very significant