Competing with Complementors: An Empirical Look at Amazon.com
37 Pages Posted: 4 Dec 2014 Last revised: 4 Mar 2016
Date Written: February 4, 2016
Platform owners sometimes enter complementors’ product spaces to compete against them directly. Prior studies have offered two possible explanations for such entries: platform owners may target the most successful complementors so as to appropriate value from their innovations, or they may target poor performing complementors to improve the platforms’ overall quality. Using data from Amazon.com, we analyze the patterns of Amazon’s entry into its third-party sellers’ product spaces. We find evidence consistent with the former explanation: that the likelihood of Amazon’s entry is positively correlated with the popularity and customer ratings of third-party sellers’ products. We also find that Amazon’s entry reduces the shipping costs of affected products and hence increases their demand. Results also show that small third-party sellers affected by Amazon’s entry appear to be discouraged from growing their businesses on the platform subsequently. The results have implications for complementors participating in various platform-based markets.
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