Abstract

http://ssrn.com/abstract=1633150
 
 

References (47)



 
 

Citations (3)



 


 



Firm Strategies in the 'Mid Tail' of Platform-Based Retailing


Baojun Jiang


Washington University in St. Louis - Olin Business School

Kinshuk Jerath


Columbia University - Columbia Business School

Kannan Srinivasan


Carnegie Mellon University - David A. Tepper School of Business

December 15, 2010


Abstract:     
While millions of products are sold on its retail platform, Amazon.com itself stocks and sells only a small fraction of them. Most of these products are sold by third-party sellers, who pay Amazon a fee for each unit sold. Empirical evidence clearly suggests that Amazon tends to sell high-demand products and leave long-tail products for independent sellers to offer. We investigate how a platform owner such as Amazon, facing ex ante demand uncertainty, may strategically learn from these sellers’ early sales which of the “mid-tail” products are worthwhile for its direct selling and which are best left for others to sell. The platform owner’s “cherry-picking” of the successful products, however, gives an independent seller the incentive to mask any high demand by lowering his sales with a reduced service level (unobserved by the platform owner).

We analyze this strategic interaction between the platform owner and the independent seller using a game-theoretic model with two types of sellers — one with high demand and one with low demand. We show that it may not always be optimal for the platform owner to identify the seller’s demand. Interestingly, the platform owner may be worse off by retaining its option to sell the independent seller’s product whereas both types of sellers may benefit from the platform owner’s threat of entry. The platform owner’s entry option may reduce the consumer surplus in the early period though it increases the consumer surplus in the later period. We also investigate how consumer reviews influence the market outcome.

Number of Pages in PDF File: 50

Keywords: platform, long-tail products, retailing, signaling, asymmetric information, pooling equilibrium

JEL Classification: M31

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Date posted: July 1, 2010 ; Last revised: April 30, 2011

Suggested Citation

Jiang, Baojun and Jerath, Kinshuk and Srinivasan, Kannan, Firm Strategies in the 'Mid Tail' of Platform-Based Retailing (December 15, 2010). Available at SSRN: http://ssrn.com/abstract=1633150 or http://dx.doi.org/10.2139/ssrn.1633150

Contact Information

Baojun Jiang (Contact Author)
Washington University in St. Louis - Olin Business School ( email )
One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States
HOME PAGE: http://apps.olin.wustl.edu/faculty/jiang/
Kinshuk Jerath
Columbia University - Columbia Business School ( email )
3022 Broadway
New York, NY 10027
United States

Kannan Srinivasan
Carnegie Mellon University - David A. Tepper School of Business ( email )
5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States
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