Marketplace or Reseller?

Management Science, Vol. 61, No. 1, pp. 184–203, January 2015

45 Pages Posted: 14 Jun 2016

See all articles by Andrei Hagiu

Andrei Hagiu

Boston University - Questrom School of Business

Julian Wright

National University of Singapore (NUS) - Department of Economics

Date Written: January 31, 2014

Abstract

Intermediaries can choose between functioning as a marketplace (on which suppliers sell their products directly to buyers) or as a reseller (purchasing products from suppliers and selling them to buyers). We model this as a decision between whether control rights over a non-contractible decision variable (the choice of some marketing activity) are better held by suppliers (the marketplacemode) or by the intermediary (the reseller-mode). Whether the marketplace or the reseller mode is preferred depends on whether independent suppliers or the intermediary have more important information relevant to the optimal tailoring of marketing activities for each specific product. We show that this tradeoff is shifted towards the reseller-mode when marketing activities create spillovers across products and when network effects lead to unfavorable expectations about supplier participation. If the reseller has a variable cost advantage (respectively, disadvantage) relative to the marketplace then the tradeoff is shifted towards the marketplace for long-tail (respectively, shorttail) products. We thus provide a theory of which products an intermediary should offer in each mode. We also provide some empirical evidence that supports our main results.

Keywords: Intermediation, Multi-Sided Platforms, Control Rights, Marketing

Suggested Citation

Hagiu, Andrei and Wright, Julian, Marketplace or Reseller? (January 31, 2014). Management Science, Vol. 61, No. 1, pp. 184–203, January 2015, Available at SSRN: https://ssrn.com/abstract=2794585 or http://dx.doi.org/10.2139/ssrn.2794585

Andrei Hagiu (Contact Author)

Boston University - Questrom School of Business ( email )

595 Commonwealth Avenue
Boston, MA MA 02215
United States

Julian Wright

National University of Singapore (NUS) - Department of Economics ( email )

AS2 Level 6, 1 Arts Link
Singapore 117570
Singapore
6568743941 (Phone)
6567752646 (Fax)

HOME PAGE: http://profile.nus.edu.sg/fass/ecsjkdw/

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