Seller Heterogeneity in a Competitive Marketplace

47 Pages Posted: 28 Oct 2012 Last revised: 11 Jul 2017

See all articles by Ruhai Wu

Ruhai Wu

McMaster University - Michael G. DeGroote School of Business

Mei Lin

Singapore Management University

Date Written: July 10, 2017

Abstract

Third-party sellers in online marketplaces provide wide product/service variety and are highly heterogeneous in the capability of delivering value to buyers. Seller variety and value heterogeneity shape seller competition, which then affects the marketplace owner’s profit. This paper presents a game theoretic model to examine the impact of seller value heterogeneity on the competition outcome and offer guidance on the value support that marketplace owners provide to selected sellers. To capture both seller variety and value heterogeneity analytically, we introduce value differentiation to the circular-city model and obtain the closed-form equilibrium solution. The results characterize the effects of the sellers’ values on their equilibrium strategies and profits. We show that the marketplace owner profits from supporting high-value sellers, which enhances their values and increases the overall value heterogeneity across the marketplace (market-wide heterogeneity). Furthermore, we find that whether the supported sellers are direct competitors matters. In fact, the marketplace owner is better off selecting the high-value sellers among directly competing sellers, which enhances the value heterogeneity of the narrower market niches (market-niche heterogeneity). In sum, while increasing market-wide heterogeneity raises the marketplace owner’s profit, enhancing market-niche heterogeneity further adds to the profit gain.

Keywords: Seller heterogeneity, marketplace competition, circular city model, game theory

JEL Classification: L1, D4, D8

Suggested Citation

Wu, Ruhai and Lin, Mei, Seller Heterogeneity in a Competitive Marketplace (July 10, 2017). Available at SSRN: https://ssrn.com/abstract=2167604 or http://dx.doi.org/10.2139/ssrn.2167604

Ruhai Wu

McMaster University - Michael G. DeGroote School of Business ( email )

1280 Main Street West
Hamilton, Ontario L8S 4M4
Canada

Mei Lin (Contact Author)

Singapore Management University ( email )

80 Stamford Road
Singapore
Singapore

HOME PAGE: http://www.mysmu.edu/faculty/mlin/

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