Supply Prioritization in Hybrid Marketplaces

49 Pages Posted: 7 Jun 2022

See all articles by Francisco Castro

Francisco Castro

University of California, Los Angeles (UCLA) - Anderson School of Management

Jian Gao

University of California, Los Angeles (UCLA) - Anderson School of Management

Sebastien Martin

Northwestern University

Date Written: May 24, 2022

Abstract

We study how a profit-maximizing firm prioritizes its supply in a “hybrid marketplace” composed of both private and flexible supply agents. The firm can choose how many private agents to operate and pays them regardless of their work. Flexible agents, on the other hand, make their own revenue, pay a commission rate to the firm, and enter or exit the marketplace in equilibrium. We develop a general framework for supply prioritization that encompasses a wide range of applications—including any firm operating with a mix of employees (private agents) and contractors (flexible agents)—and allow for any complex pricing/matching/supply management policies. We analyze the implications of supply prioritization not through the specifics of a given policy but, instead, through the outcomes it implies for all stakeholders.

Our main results show that without the use of supply prioritization, it is never optimal for the firm to use hybrid supply. On the other hand, prioritization strategies can make it optimal for the firm to operate a hybrid marketplace, even if the private supply is costly. Prioritizing private supply makes private agents particularly productive—justifying the firm’s investment—but comes at the expense of flexible supply that may flee the market. Hence, the firm prioritizes private supply when the market is “over-supplied,” but it may also prioritize flexible supply in “under-supplied” markets in which a slight increase of supply can have a significant impact. Our results provide a general understanding of the advantages of hybrid marketplaces and the key role of supply prioritization.

Keywords: supply prioritization, hybrid marketplaces

Suggested Citation

Castro, Francisco and Gao, Jian and Martin, Sebastien, Supply Prioritization in Hybrid Marketplaces (May 24, 2022). Available at SSRN: https://ssrn.com/abstract=4119096 or http://dx.doi.org/10.2139/ssrn.4119096

Francisco Castro

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States
6465528479 (Phone)
90095 (Fax)

Jian Gao (Contact Author)

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

Sebastien Martin

Northwestern University

2001 Sheridan Road
Evanston, IL 60208
United States

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