Managing Market Thickness in Online B2B Markets

68 Pages Posted: 25 Aug 2019

See all articles by Kostas Bimpikis

Kostas Bimpikis

Stanford Graduate School of Business

Wedad J. Elmaghraby

University of Maryland - Robert H. Smith School of Business

Ken Moon

University of Pennsylvania - The Wharton School

Wenchang Zhang

Kelley School of Business

Date Written: August 25, 2019

Abstract

We explore marketplace design in the context of a B2B platform specializing in liquidation auctions. Even when the platform’s aggregate levels of supply and demand remain fixed, we establish that the platform’s ability to use its design levers to manage the availability of supply over time yields significant value. We study two such levers, each using the platform’s availability of supply as a means to incentivize participation from buyers who decide strategically when/how often to participate. First, the platform’s listing policy sets the ending times of incoming auctions (hence, the frequency of market clearing). Exploiting a natural experiment, we illustrate that consolidating auctions’ ending times to certain weekdays increases the platform’s revenues by 7.3% mainly by inducing a higher level of bidder participation. The second lever is a recommendation system that can be used to reveal information about real-time market thickness to potential bidders. The optimization of these levers highlights a novel trade-off. Namely, when the platform consolidates auctions’ ending times, more bidders may participate in the marketplace (demand-side competition); but ultimately auctions for substitutable goods cannibalize one another (supply-side competition). To optimize these design decisions, we estimate a structural model that endogenizes bidders’ dynamic behavior, i.e., their decisions on whether/how often to participate in the marketplace and how much to bid. We find that appropriately designing a recommendation system yields an additional revenue increase (on top of the benefits obtained by optimizing the platform’s listing policy) by reducing supply-side cannibalization and altering the composition of participating bidders.

Keywords: Online markets; Market clearing; Market thickness, Matching supply with demand; Natural experiment; Structural estimation

Suggested Citation

Bimpikis, Kostas and Elmaghraby, Wedad J. and Moon, Ken and Zhang, Wenchang, Managing Market Thickness in Online B2B Markets (August 25, 2019). Kelley School of Business Research Paper No. 19-51; Stanford University Graduate School of Business Research Paper No. 3442379. Available at SSRN: https://ssrn.com/abstract=3442379 or http://dx.doi.org/10.2139/ssrn.3442379

Kostas Bimpikis

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

Wedad J. Elmaghraby

University of Maryland - Robert H. Smith School of Business ( email )

College Park, MD 20742-1815
United States

Ken Moon

University of Pennsylvania - The Wharton School ( email )

Jon M. Huntsman Hall
3730 Walnut St.
Philadelphia, PA 19104-6365
United States

Wenchang Zhang (Contact Author)

Kelley School of Business ( email )

Business 670
1309 E. Tenth Street
Bloomington, IN 47401
United States

HOME PAGE: http://www.wenchangzhang.com/

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