Technology and Disintermediation in Online Marketplaces

59 Pages Posted: 11 Jul 2022

See all articles by Grace Gu

Grace Gu

University of Southern California - Marshall School of Business

Date Written: May 12, 2022

Abstract

With the development of communication technology that makes online transactions easier, there is also an increased risk of disintermediation—sellers and buyers circumventing a platform to transact directly—in online two-sided marketplaces. Such disintermediation may lead to significant revenue loss for online platforms. However, it remains unclear how the characteristics of platforms affect a platform’s vulnerability to disintermediation. Using the blockade of Skype by the Great Firewall (GFW) of China as a natural experiment, we examine how online communication technologies affected disintermediation and transaction outcomes in a large US online freelance marketplace. Results show that restricting alternative communication technologies, which platforms struggle to monitor, avoids further disintermediation by around 18%. The effect is potentially due to economic frictions in transactions, as the disintermediation reduction is greater for high transaction cost jobs such as timely jobs, communication-intensive jobs, or high-skilled jobs, as well as for cost-sensitive users such as experienced users or personal instead of business users. With these results, platforms can reduce disintermediation risk during investment and market entry decisions.

Keywords: Disintermediation, Online Marketplace, Intermediary, Communication Technology

JEL Classification: L14, L86, O33

Suggested Citation

Gu, Grace, Technology and Disintermediation in Online Marketplaces (May 12, 2022). Available at SSRN: https://ssrn.com/abstract=4150094 or http://dx.doi.org/10.2139/ssrn.4150094

Grace Gu (Contact Author)

University of Southern California - Marshall School of Business ( email )

701 Exposition Blvd
Los Angeles, CA California 90089
United States

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