Marketplace Expansion through Marquee Seller Adoption: Externalities and Quality Implications

Abstract

In the race to establish themselves, many early-stage marketplaces choose to accelerate their growth by adding marquee (established brand name) sellers. We study the implications of marquee seller adoption on smaller, lesser-known unbranded sellers in the marketplace. While recent literature has shown that higher-quality unbranded sellers fare better than their lower-quality peers, we posit that this tendency may depend on the quality of entering marquee sellers. To this end, we collaborate with a B2B platform and exploit its two marquee sellers' adoptions of contrasting qualities. Using a difference-in-differences framework, we causally identify the effect. We find that while higher-quality unbranded seller revenues increase relative to low-quality unbranded sellers when the entering marquee seller is of high quality (consistent with the literature), the effect is reversed when the entering marquee seller is of low quality. Further, unbranded sellers change their supply quantities such that their average supply quality shifts in the direction of marquee entrant quality. Using a stylized theoretical model, we identify two mechanisms that drive our findings - (i) new buyers brought in as a result of the marquee's entry disproportionately favoring unbranded sellers of neighboring quality, and (ii) the unbranded seller's ability to adjust their supply quantities. Our findings have implications on marquee sellers' adoption strategies for marketplaces where sellers strategically set their supply quantity (a key feature of several marketplaces, including many gig-economy marketplaces). The choice of marquee sellers, examined through the lens of their externality on unbranded sellers, can foster or undermine the platform's long-term growth objectives.

Keywords: marketplaces, empirical OM, quantity competition, difference-in-differences