Marketplace Expansion Through Marquee Seller Adoption: Externalities and Reputation Implications

102 Pages Posted: 18 Oct 2021 Last revised: 7 Dec 2023

See all articles by Wenchang Zhang

Wenchang Zhang

Indiana University, Kelley School of Business

Wedad J. Elmaghraby

University of Maryland - Robert H. Smith School of Business

Ashish Kabra

University of Maryland - Robert H. Smith School of Business

Date Written: September 17, 2021

Abstract

In the race to establish themselves, many early-stage online marketplaces choose to accelerate their growth by adding marquee (established brand name) sellers. We study the implications of marquee seller entry on smaller, unbranded sellers in a marketplace when both unbranded sellers and marquee sellers can vary vertically across reputation (referred to as sellers’ quality). While recent literature (Reshef 2020, Zervas et al. 2017) has shown that higher-quality unbranded sellers fare better than their lower-quality peers, we posit that this may not hold for entrants of any quality. To this end, we collaborate with an online business-to-business platform and exploit the entry of two marquee sellers of vastly differing quality. Using a difference-in-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 entrant is of superior quality (consistent with the literature), the effect is reversed when the entrant is of inferior quality. Further, unbranded sellers change their supply quantities such that the platform’s average supply quality shifts in the direction of entrant quality. Using a stylized theoretical model, we identify two mechanisms that drive our findings – (i) new buyers brought in by the entrant disproportionately favor unbranded sellers who are quality neighbors to the entrant, and (ii) the unbranded seller’s ability to adjust their supply quantities. Most notably, 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

Suggested Citation

Zhang, Wenchang and Elmaghraby, Wedad J. and Kabra, Ashish, Marketplace Expansion Through Marquee Seller Adoption: Externalities and Reputation Implications (September 17, 2021). Kelley School of Business Research Paper Forthcoming, Available at SSRN: https://ssrn.com/abstract=3925847 or http://dx.doi.org/10.2139/ssrn.3925847

Wenchang Zhang (Contact Author)

Indiana University, Kelley School of Business ( email )

Business 670
1309 E. Tenth Street
Bloomington, IN 47401
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HOME PAGE: http://www.wenchangzhang.com/

Wedad J. Elmaghraby

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

College Park, MD 20742-1815
United States

Ashish Kabra

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

7621 Mowatt Ln
Apt 1116
College Park, MD 20740
United States
6158779203 (Phone)

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