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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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    File URL: http://dx.doi.org/10.1287/mnsc.2014.2042
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    References listed on IDEAS

    as
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    15. Andrei Hagiu & Robin S. Lee, 2011. "Exclusivity and Control," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 20(3), pages 679-708, September.
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    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    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

    Citations

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    Cited by:

    1. Johnson, Justin P., 2020. "The agency and wholesale models in electronic content markets," International Journal of Industrial Organization, Elsevier, vol. 69(C).
    2. Qin, Xuelian & Liu, Zhixue & Tian, Lin, 2020. "The strategic analysis of logistics service sharing in an e-commerce platform," Omega, Elsevier, vol. 92(C).
    3. Gielens, Katrijn & Steenkamp, Jan-Benedict E.M., 2019. "Branding in the era of digital (dis)intermediation," International Journal of Research in Marketing, Elsevier, vol. 36(3), pages 367-384.
    4. Andrei Hagiu & Julian Wright, 2015. "Controlling Versus Enabling," Harvard Business School Working Papers 16-002, Harvard Business School, revised Jul 2016.
    5. 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.
    6. Belhadj, Nada & Laussel, Didier & Resende, Joana, 2020. "Marketplace or reselling? A signalling model," Information Economics and Policy, Elsevier, vol. 50(C).
    7. Clayton M. Christensen & Rory McDonald & Elizabeth J. Altman & Jonathan E. Palmer, 2018. "Disruptive Innovation: An Intellectual History and Directions for Future Research," Journal of Management Studies, Wiley Blackwell, vol. 55(7), pages 1043-1078, November.
    8. Liu, Weihua & Yan, Xiaoyu & Li, Xiang & Wei, Wanying, 2020. "The impacts of market size and data-driven marketing on the sales mode selection in an Internet platform based supply chain," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 136(C).
    9. Karl Taeuscher, 2019. "Uncertainty kills the long tail: demand concentration in peer-to-peer marketplaces," Electronic Markets, Springer;IIM University of St. Gallen, vol. 29(4), pages 649-660, December.

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