Dealership or Marketplace: A Dynamic Comparison

64 Pages Posted: 29 Oct 2019 Last revised: 6 Apr 2020

See all articles by Ningyuan Chen

Ningyuan Chen

University of Toronto at Mississauga - Department of Management; University of Toronto - Rotman School of Management

Guillermo Gallego

HKUST; Columbia University

Pin Gao

Department of Industrial Engineering and Decision Analytics, HKUST

Steven Kou

Boston University

Date Written: October 19, 2019

Abstract

We consider two business models for a two-sided economy under uncertainty: dealership and marketplace. Although both business models can bridge the gap between demand and supply, it is not clear which model is better for the firm or for the consumers. We show that while the two models differ substantially in pricing power, inventory risk, fee structure, and fulfillment time, both models share several important features, with the revenues to the firm from the two models converging when the markets are thick. We also show that for thick markets there is a one-to-one mapping between their corresponding optimal policies. We provide guidelines and insights as to which business model is preferable under different conditions when the markets are not thick.

Keywords: dynamic pricing, business models, dynamic game, Markov perfect equilibrium, structural properties

Suggested Citation

Chen, Ningyuan and Gallego, Guillermo and Gao, Pin and Kou, Steven, Dealership or Marketplace: A Dynamic Comparison (October 19, 2019). Available at SSRN: https://ssrn.com/abstract=3472161 or http://dx.doi.org/10.2139/ssrn.3472161

Ningyuan Chen (Contact Author)

University of Toronto at Mississauga - Department of Management ( email )


Canada

University of Toronto - Rotman School of Management ( email )

105 St. George st
Toronto, ON M5S 3E6
Canada

Guillermo Gallego

HKUST ( email )

Clearwater Bay
Kowloon, 999999
Hong Kong

HOME PAGE: http://https://seng.ust.hk/about/people/faculty/guillermo-gallego

Columbia University ( email )

3022 Broadway
New York, NY 10027
United States

Pin Gao

Department of Industrial Engineering and Decision Analytics, HKUST ( email )

Steven Kou

Boston University ( email )

595 Commonwealth Avenue
Boston, MA 02215
United States
6173583318 (Phone)

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