Position Ranking and Auctions for Online Marketplaces

78 Pages Posted: 3 Mar 2017 Last revised: 19 Jul 2018

Leon Yang Chu

University of Southern California - Marshall school of Business

Hamid Nazerzadeh

University of Southern California - Marshall School of Business

Heng Zhang

USC Marshall School of Business, DSO Department

Date Written: March 1, 2017

Abstract

Online e-commerce platforms such as Amazon and Taobao connect thousands of sellers and consumers every day. In this work, we study how such platforms should rank products displayed to consumers, and utilize the top and most salient slots. We present a model that considers consumers' search costs and the externalities sellers impose on each other. This model allows us to study a multi-objective optimization, whose objective includes consumer and seller surplus, as well as the sales revenue, and derive the optimal ranking decision. In addition, we propose a so-called surplus-ordered ranking (SOR) mechanism for selling some of the top slots. This mechanism is motivated in part by Amazon's sponsored search program. We show that our mechanism is near-optimal, performing significantly better than those that do not incentivize the sellers to reveal their private information. In addition, when the platform sells all slots, we show that our mechanism can be implemented as a Nash equilibrium in a modified generalized second price (GSP) auction.

Keywords: E-Commerce Platforms, Position Auctions, Consumer Search, Seller Externalities, Mechanism Design, Social Surplus Maximization, Generalized Second Price Auction

Suggested Citation

Chu, Leon Yang and Nazerzadeh, Hamid and Zhang, Heng, Position Ranking and Auctions for Online Marketplaces (March 1, 2017). Available at SSRN: https://ssrn.com/abstract=2926176 or http://dx.doi.org/10.2139/ssrn.2926176

Leon Yang Chu

University of Southern California - Marshall school of Business ( email )

Marshall School of Business
BRI 401, 3670 Trousdale Parkway
Los Angeles, CA 90089
United States

Hamid Nazerzadeh

University of Southern California - Marshall School of Business ( email )

Bridge Memorial Hall
Los Angeles, CA 90089
United States

HOME PAGE: http://www-bcf.usc.edu/~nazerzad/

Heng Zhang (Contact Author)

USC Marshall School of Business, DSO Department ( email )

701 Exposition Blvd
Los Angeles, CA 90089
United States

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