Dealership or Marketplace with Fulfillment Services: A Dynamic Comparison

Problem definition : We consider two business models for a two-sided economy under uncertainty: dealership and marketplace with fulfillment services. Although both business models can bridge the gap between demand and supply, it is not clear which model is better for the firm or for the consumers. Methodology/results : We show that, whereas the two models differ substantially in pricing power, inventory risk, fee structure, and fulfillment time, both models share several important features with the revenues earned by the firm from the two models converging when the markets are thick. We also show that, for thick markets, there is a one-to-one mapping between their corresponding optimal policies. Managerial implications : Our results provide guidelines for firms entering two-sided markets: when the market is thick, the two business models are similar; when the market is thin, they should carefully inspect a number of market conditions before making the choice.