Technology and Disintermediation in Online Marketplaces

61 Pages Posted: 11 Jul 2022 Last revised: 22 Sep 2023

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 their vulnerability to disintermediation. Using the blockade of Skype in mainland China as a natural experiment, this study examines how online communication technologies affect disintermediation and transaction outcomes in a large US online freelance marketplace. The results show that restricting this alternative communication technology, which platforms struggle to monitor, reduces disintermediation by around 18%. This effect is potentially due to economic frictions in transactions, as the reduction in disintermediation is greater for high-transaction-cost jobs, such as time-sensitive jobs, communication-intensive jobs, and high-skilled jobs, as well as for cost-sensitive users, such as experienced users and personal users as opposed to enterprise users. With these results, platforms can reduce disintermediation risks when making 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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