Marketplace Scalability and Strategic Use of Platform Investment

36 Pages Posted: 6 Jan 2019

See all articles by Jin Li

Jin Li

HKU SPACE Community College

Gary P. Pisano

Harvard Business School

Feng Zhu

Harvard University - Harvard Business School

Date Written: December 20, 2018

Abstract

The scalability of a marketplace depends on the operations of the marketplace platform as well as its sellers’ cost structures and capacities. When fixed costs of entry are high, sellers with small capacities may be deterred from entering the market because of their inability to leverage economies of scale. In this study, we explore one strategy that a marketplace platform can use to enhance its scalability: providing an ancillary service to sellers to reduce their fixed costs. In our model, a platform can choose whether and when to provide this service to sellers. When the platform provides the service, it encourages the entry of small sellers. However, it diminishes large sellers’ incentives to make their own investment, thus reducing their potential output. When the output reduction by the large sellers is substantial, the platform may not want to provide the ancillary service even if it could do so at no cost. To encourage entry while mitigating output reduction, the platform may choose to strategically delay providing the service.

Keywords: marketplace, scalability, platform strategy, platform investment

Suggested Citation

Li, Jin and Pisano, Gary and Zhu, Feng, Marketplace Scalability and Strategic Use of Platform Investment (December 20, 2018). Harvard Business School Technology & Operations Mgt. Unit Working Paper No. 19-063. Available at SSRN: https://ssrn.com/abstract=3310484 or http://dx.doi.org/10.2139/ssrn.3310484

Jin Li

HKU SPACE Community College ( email )

28 Wang Hoi Road Kowloon Bay
Kowloon
Hong Kong

Gary Pisano

Harvard Business School ( email )

Technology & Operations Management Unit
Morgan Hall
Boston, MA 02163
United States
617-495-6562 (Phone)
617-496-5265 (Fax)

Feng Zhu (Contact Author)

Harvard University - Harvard Business School ( email )

Soldiers Field Road
Morgan 431
Boston, MA 02163
United States

HOME PAGE: http://www.hbs.edu/faculty/Pages/profile.aspx?facId=14938

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