Wait or Invest Early? An Analysis of Product Cocreation in Online Platforms

Abstract

Recently, e-commerce platforms like Amazon and Flipkart have started collaborating with sellers to introduce the product in competition with an existing seller on the platform. The collaborating seller and the platform firm make significant investments that determine the quality of the product. Considering such collaboration dynamics, we investigated should the platform invest early in the product development or wait for the collaborating seller? We adopted the game-theoretic approach to solve the above problem. Our analysis revealed that under the scenario where sellers do not have wholesale pricing power and quality improvement effectiveness in codeveloping the product is low, the platform makes a higher profit when all players simultaneously decide the efforts. Otherwise, the platform earns a higher profit when it invests after observing the efforts of both sellers. Interestingly, when the sellers strategically decide wholesale prices, the platform always makes a maximum profit when it invests after observing investments by the sellers.