Marketplace Scalability and Strategic Use of Platform Investment

34 Pages Posted: 6 Jan 2019 Last revised: 20 Jun 2022

See all articles by Jin Li

Jin Li

Faculty of Business and Economics, The University of Hong Kong

Gary P. Pisano

Harvard Business School

Richard Xu

University of Southern California

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. In this study, we explore one strategy that a marketplace platform can use to enhance its scalability: providing an ancillary service to sellers. In our model, a platform can choose whether and when to provide this service to sellers and, if so, what prices to charge and which types of sellers to serve. While such a service helps small sellers, we highlight that the provision of such a service can diminish large sellers' incentives to make their own investment, thus reducing their potential output. When the output reduction by large sellers is substantial, the platform may not want to provide the ancillary service and, even if it does, it may choose to set a price higher than its marginal cost to motivate large sellers to scale. The platform may also choose to strategically delay providing the service.

Keywords: marketplace, scalability, platform strategy, platform investment

Suggested Citation

Li, Jin and Pisano, Gary and Xu, Yejia 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

Faculty of Business and Economics, The University of Hong Kong ( email )

Pokfulam Road
Hong Kong, Pokfulam HK
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)

Yejia Xu

University of Southern California ( email )

2250 Alcazar Street
Los Angeles, CA 90089
United States

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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