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Marketplace or Reseller?

Author

Listed:
  • Andrei Hagiu

    (Harvard Business School, Boston, Massachusetts 02163)

  • Julian Wright

    (Department of Economics, National University of Singapore, Singapore 117570)

Abstract

Intermediaries can choose between functioning as a marketplace (in which suppliers sell their products directly to buyers) or as a reseller (by purchasing products from suppliers and selling them to buyers). We model this as a decision between whether control rights over a noncontractible decision variable (the choice of some marketing activity) are better held by suppliers (the marketplace mode) or by the intermediary (the reseller mode). Whether the marketplace or the reseller mode is preferred depends on whether independent suppliers or the intermediary have more important information relevant to the optimal tailoring of marketing activities for each specific product. We show that this trade-off is shifted toward the reseller mode when marketing activities create spillovers across products and when network effects lead to unfavorable expectations about supplier participation. If the reseller has a variable cost advantage (respectively, disadvantage) relative to the marketplace, then the trade-off is shifted toward the marketplace for long-tail (respectively, short-tail) products. We thus provide a theory of which products an intermediary should offer in each mode. We also provide some empirical evidence that supports our main results.Data, as supplemental material, are available at http://dx.doi.org/10.1287/mnsc.2014.2042 . This paper was accepted by Bruno Cassiman, business strategy.

Suggested Citation

  • Andrei Hagiu & Julian Wright, 2015. "Marketplace or Reseller?," Management Science, INFORMS, vol. 61(1), pages 184-203, January.
  • Handle: RePEc:inm:ormnsc:v:61:y:2015:i:1:p:184-203
    DOI: 10.1287/mnsc.2014.2042
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    References listed on IDEAS

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    1. Andrei Hagiu and Julian Wright (MS, 2015). Marketplace or Reseller?
      by ireadeconpapers in I Read Econ Papers on 2020-04-16 12:34:15

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    Cited by:

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    4. Xu, Xiaoping & He, Ping & Zhang, Shanshan, 2021. "Channel addition from marketplace or reselling under regional carbon cap-and-trade regulation," International Journal of Production Economics, Elsevier, vol. 236(C).
    5. Bijmolt, Tammo H.A. & Broekhuis, Manda & de Leeuw, Sander & Hirche, Christian & Rooderkerk, Robert P. & Sousa, Rui & Zhu, Stuart X., 2021. "Challenges at the marketing–operations interface in omni-channel retail environments," Journal of Business Research, Elsevier, vol. 122(C), pages 864-874.
    6. Johnson, Justin P., 2020. "The agency and wholesale models in electronic content markets," International Journal of Industrial Organization, Elsevier, vol. 69(C).
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    9. Mark J. Tremblay, 2020. "The Limits of Marketplace Fee Discrimination," Working Papers 20-10, NET Institute.
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    11. Zhang, Jianqiang & Cao, Qingning & He, Xiuli, 2019. "Contract and product quality in platform selling," European Journal of Operational Research, Elsevier, vol. 272(3), pages 928-944.
    12. Belhadj, Nada & Laussel, Didier & Resende, Joana, 2020. "Marketplace or reselling? A signalling model," Information Economics and Policy, Elsevier, vol. 50(C).
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