Working Paper: CEPR ID: DP17351
Authors: Sandro Shelegia; Andres Hervas-Drane
Abstract: Leading retailers have opened up their online storefronts to competitors by operating marketplaces for third party sellers. We develop a model of entry and price competition at the product market level, and show that the retailer softens competition through control of the storefront and benefits from third party sellers by learning about products and mitigating his own capacity constraints. We examine policy interventions and find that regulation of marketplace fees has the strongest potential to increase welfare outcomes. Our model provides novel insights into the mechanisms at play in retailer-led marketplaces and explains their prominent role in online retail.
Keywords: product entry; price competition; marketplace fees; buy box; observational learning; product assortment
JEL Codes: D40; L10; L25; L42; L81
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Retailer (L81) | Price Competition (D41) |
| Retailer (L81) | Learning and Operational Advantages (D83) |
| Fee Regulation (G18) | Welfare Improvements (I38) |