Deng, Yiting;
Tang, Christopher S;
Wang, Wei;
Yoo, Onesun Steve;
(2023)
Can Third-Party Sellers Benefit from a Platform’s Entry to the Market?
Service Science
10.1287/serv.2023.0324.
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Abstract
Because of the informational advantage of online marketplaces (i.e., platforms), it is a common belief that a platform’s market entry will be detrimental to third-party sellers who sell similar products on the platform. To examine the validity of this belief, we conduct an exploratory analysis using the sales data for a single product category provided by JD.com for the month of March 2018. Our analysis reveals an unexpected result. Upon the platform’s entry, third-party sellers who sell similar products can afford to charge a higher price, obtain a higher demand, and earn a higher profit. To provide a plausible explanation for this unexpected exploratory result, we develop a duopoly model that incorporates the changing competitive dynamic before and after the platform’s entry. Specifically, before entry, the platform earns a commission (based on the seller’s revenue), whereas the seller sets its retail price as a monopoly. After entry, the platform earns a profit generated by its direct sales in addition to the commission from the seller. In addition, the seller and the platform operate in a duopoly and engage in a sequential game. By examining the equilibrium outcomes associated with this sequential game, we identify conditions under which the platform’s entry can create a win-win situation for both parties. Specifically, these conditions hold when the platform’s market potential is moderate and when the platform’s entry creates a sufficiently high spillover effect on the seller, providing a plausible explanation for our empirical finding that the seller can benefit from a platform’s entry.
| Type: | Article |
|---|---|
| Title: | Can Third-Party Sellers Benefit from a Platform’s Entry to the Market? |
| Open access status: | An open access version is available from UCL Discovery |
| DOI: | 10.1287/serv.2023.0324 |
| Publisher version: | https://doi.org/10.1287/serv.2023.0324 |
| Language: | English |
| Additional information: | This version is the author accepted manuscript. For information on re-use, please refer to the publisher’s terms and conditions. |
| Keywords: | Online platform, platform entry, spillover, market potential |
| UCL classification: | UCL UCL > Provost and Vice Provost Offices > UCL BEAMS UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Engineering Science UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Engineering Science > UCL School of Management |
| URI: | https://discovery-pp.ucl.ac.uk/id/eprint/10168494 |
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