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Marketplace Scalability and Strategic Use of Platform Investment

Author

Listed:
  • Jin Li

    (Department of Management and Strategy, Hong Kong University, Lung Fu Shan, Hong Kong 74MQ+8J, China)

  • Gary Pisano

    (Technology and Operations Management Unit, Harvard Business School, Boston, Massachusetts 02163)

  • Yejia Xu

    (Department of Economics, University of Southern California, Los Angeles, California 90089)

  • Feng Zhu

    (Technology and Operations Management Unit, Harvard Business School, Boston, Massachusetts 02163)

Abstract

The scalability of a marketplace depends on the operations of the marketplace platform and its sellers’ capacities. In this study, we explore one strategy that a marketplace platform can use to enhance its scalability: providing an ancillary service to sellers. In our model, a platform can choose whether and when to provide this service to sellers and, if so, what prices to charge and which types of sellers to serve. Although such a service helps small sellers, we highlight that the provision of such a service can diminish the incentives of large sellers to make their own investment, thereby reducing their potential output. When the output reduction by large sellers is substantial, the platform may not want to provide the ancillary service, and, even if it does, it may choose to set a price higher than its marginal cost to motivate large sellers to scale. The platform may also choose to strategically delay the provision of the service.

Suggested Citation

  • Jin Li & Gary Pisano & Yejia Xu & Feng Zhu, 2023. "Marketplace Scalability and Strategic Use of Platform Investment," Management Science, INFORMS, vol. 69(7), pages 3958-3975, July.
    • Handle: RePEc:inm:ormnsc:v:69:y:2023:i:7:p:3958-3975
    DOI: 10.1287/mnsc.2022.4522
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    References listed on IDEAS

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