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Merchant or Two-Sided Platform?

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  • Hagiu Andrei

    () (Harvard Business School)

Abstract

This paper provides a first pass at comparing two polar strategies for market intermediation: "merchant" mode buying from sellers and reselling to buyers - and "two-sided platform" mode enabling affiliated sellers to sell directly to affiliated buyers. The merchant mode is more profitable when the chicken-and-egg problem for the two-sided platform is more severe and when the degree of complementarity among sellers' products is higher. The platform mode is preferred when seller investment incentives are important or when there is asymmetric information regarding seller product quality. We discuss these tradeoffs in the context of several prominent digital intermediaries.

Suggested Citation

  • Hagiu Andrei, 2007. "Merchant or Two-Sided Platform?," Review of Network Economics, De Gruyter, vol. 6(2), pages 1-19, June.
  • Handle: RePEc:bpj:rneart:v:6:y:2007:i:2:n:3
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Johannes Muthers & Sebastian Wismer, 2012. "Why Do Platforms Charge Proportional Fees? Commitment and Seller Participation," Working Papers 115, Bavarian Graduate Program in Economics (BGPE).
    2. Sülzle, Kai, 2009. "Duopolistic competition between independent and collaborative business-to-business marketplaces," International Journal of Industrial Organization, Elsevier, pages 615-624.
    3. Belleflamme, Paul & Peitz, Martin, 2010. "Platform competition and seller investment incentives," European Economic Review, Elsevier, pages 1059-1076.
    4. Ke Ding, 2014. "The specialized market system: the market exploration of small businesses," Chapters,in: The Disintegration of Production, chapter 6, pages 149-176 Edward Elgar Publishing.
    5. White, Alexander, 2013. "Search engines: Left side quality versus right side profits," International Journal of Industrial Organization, Elsevier, vol. 31(6), pages 690-701.
    6. Filistrucchi, L. & Geradin, D.A.A.G. & van Damme, E.E.C., 2012. "Identifying Two-Sided Markets," Discussion Paper 2012-008, Tilburg University, Tilburg Law and Economic Center.
    7. Ding, Ke, 2013. "Platforms and firm capabilities : a study of emerging global value chains," IDE Discussion Papers 432, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    8. Evens, Tom, 2010. "Challenging content exclusivity in network industries: the case of digital broadcasting," 21st European Regional ITS Conference, Copenhagen 2010: Telecommunications at new crossroads - Changing value configurations, user roles, and regulation 12, International Telecommunications Society (ITS).
    9. George, Lisa M. & Hogendorn, Christiaan, 2012. "Aggregators, search and the economics of new media institutions," Information Economics and Policy, Elsevier, vol. 24(1), pages 40-51.
    10. Amel Attour, 2014. "Quel leader et business model ouvert pour les écosystèmes-plateformes de type NFC ?," Post-Print halshs-01104079, HAL.
    11. Skreta, Vasiliki, 2015. "Optimal auction design under non-commitment," Journal of Economic Theory, Elsevier, pages 854-890.
    12. Mariko Watanabe, 2014. "An analytical framework for the vigorous entry and low price phenomenon," Chapters,in: The Disintegration of Production, chapter 1, pages 26-48 Edward Elgar Publishing.
    13. Elizabeth J. Altman & Mary Tripsas, 2013. "Product to Platform Transitions: Organizational Identity Implications," Harvard Business School Working Papers 14-045, Harvard Business School, revised Sep 2014.
    14. Amel Attour & Maëlle Della Peruta, 2013. "Le rôle des connaissances architecturales dans l’élaboration de la plateforme technologique d’un écosystème en émergence: le cas des plateformes NFC," GREDEG Working Papers 2013-15, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), University of Nice Sophia Antipolis.
    15. Jullien, Bruno, 2010. "Two-Sided B2B Platforms," IDEI Working Papers 652, Institut d'Économie Industrielle (IDEI), Toulouse, revised Mar 2011.
    16. Daniele Condorelli & Andrea Galeotti & Vasiliki Skreta, 2013. "Selling Through Referrals," Working Papers 13-06, New York University, Leonard N. Stern School of Business, Department of Economics.
    17. Enrico Böhme & Christopher Müller, 2013. "Price-Increasing Competition on Two-Sided Markets with Homogeneous Platforms," Journal of Industry, Competition and Trade, Springer, vol. 13(4), pages 453-479, December.
    18. S. Sriram & Puneet Manchanda & Mercedes Bravo & Junhong Chu & Liye Ma & Minjae Song & Scott Shriver & Upender Subramanian, 2015. "Platforms: a multiplicity of research opportunities," Marketing Letters, Springer, vol. 26(2), pages 141-152, June.
    19. E. Glen Weyl, 2010. "A Price Theory of Multi-sided Platforms," American Economic Review, American Economic Association, vol. 100(4), pages 1642-1672, September.
    20. Bogart, Dan & Chaudhary, Latika, 2015. "Off the rails: Is state ownership bad for productivity?," Journal of Comparative Economics, Elsevier, pages 997-1013.
    21. Hagiu, Andrei, 2009. "Why Do Intermediaries Divert Search?," Department of Economics, Working Paper Series qt3f34c5dk, Department of Economics, Institute for Business and Economic Research, UC Berkeley.

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