Dual Role and Product Featuring Strategy of Digital Platform

A digital platform operates the marketplace that connects third-party merchants to consumers and simultaneously participates in its marketplace by selling its own product directly to consumers. This dual role raises the concern that the platform may be self-preferencing, leading to unfair competition and harming both merchants and consumers. We develop a game-theoretical model to investigate the implication of dual role on the platform’s product featuring strategy, the seller’s pricing strategy, and the consumer’s welfare. We show that the platform presents an “intermediary bias” such that it may not feature the best possible product to consumers, regardless of whether the platform is under dual role or sole marketplace mode. Surprisingly, dual role, in some scenarios, may mitigate the intermediary bias and intensify price competition in its marketplace. Consequently, prohibiting the platform from selling directly to consumers may not always be welfare-improving to consumers. Furthermore, banning the platform’s perfect product imitation can harm consumers when dual role is still allowed.