How Do Marketplaces Compete? The View From Stripe Connect

31 Pages Posted: 25 Aug 2018

Date Written: August 16, 2018

Abstract

Do online marketplaces compete mainly on product quality like traditional businesses? Or do network effects yield winner-take-all outcomes to early entrants even if their product quality is low? To explore this question we analyze a new sample of 212 online marketplaces over their first two years on Stripe. We find that winning marketplaces exhibit large quality advantages from their very first months, and these quality advantages focus on sellers rather than buyers. First-mover advantage does emerge, but not in a form implying winner-take-all. Other marketplace growth dynamics also lack winner-take-all properties. Typical marketplaces in our sample appear to compete on product quality against persistent rivals, much like traditional businesses without substantial network effects.

Keywords: Digitization, Marketplaces, Competition, Platforms

JEL Classification: L1, L86

Suggested Citation

Hilger, Nathaniel, How Do Marketplaces Compete? The View From Stripe Connect (August 16, 2018). Available at SSRN: https://ssrn.com/abstract=3232470 or http://dx.doi.org/10.2139/ssrn.3232470

Nathaniel Hilger (Contact Author)

Stripe ( email )

510 Townsend St
San Francisco, CA 94103
United States

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