Dealership or Marketplace with Fulfillment Service: A Dynamic Comparison

58 Pages Posted: 23 Jan 2024

See all articles by Guokai Li

Guokai Li

The Chinese University of Hong Kong, Shenzhen

Ningyuan Chen

University of Toronto - Rotman School of Management

Guillermo Gallego

CUHK-SZ

Pin Gao

School of Data Science, The Chinese University of Hong Kong, Shenzhen

Steven Kou

Boston University

Date Written: October 19, 2019

Abstract

Problem Definition: We consider two business models for a two-sided economy under uncertainty: dealership and marketplace with fulfillment services. Although both business models can bridge the gap between demand and supply, it is not clear which model is better for the firm or for the consumers. Methodology/Results: We show that while the two models di↵er substantially in pricing power, inventory risk, fee structure, and fulfillment time, both models share several important features, with the revenues earned by the firm from the two models converging when the markets are thick. We also show that for thick markets there is a one-to-one mapping between their corresponding optimal policies. Managerial implications: Our results provide guidelines for firms entering two-sided markets: when the market is thick, the two business models are similar; when the market is thin, they should carefully inspect a number of market conditions before making the choice.

Keywords: dynamic pricing, business models, dynamic game, Markov perfect equilibrium, structural properties

Suggested Citation

Li, Guokai and Chen, Ningyuan and Gallego, Guillermo and Gao, Pin and Kou, Steven, Dealership or Marketplace with Fulfillment Service: A Dynamic Comparison (October 19, 2019). Available at SSRN: https://ssrn.com/abstract=3472161 or http://dx.doi.org/10.2139/ssrn.3472161

Guokai Li

The Chinese University of Hong Kong, Shenzhen ( email )

China

Ningyuan Chen (Contact Author)

University of Toronto - Rotman School of Management ( email )

Pin Gao

School of Data Science, The Chinese University of Hong Kong, Shenzhen ( email )

Steven Kou

Boston University ( email )

595 Commonwealth Avenue
Boston, MA 02215
United States
6173583318 (Phone)

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