Product Selection in Online Marketplaces

A marketplace such as Amazon hosts many products by third party sellers and acts as a first party or private label retailer. Assuming an advantage of Amazon in logistics and of sellers in marketing, we investigate whether entry by Amazon is excessive from the point of view of consumers. With competitive sellers, entry may be either overprovided or underprovided, but the incentives of Amazon and consumers are correctly aligned for a family of power surplus functions (generating for instance linear, isoelastic and loglinear demands). Competition for customers with other retailers reduces commissions and prices preserving the efficiency result. Market power by sellers increases (reduces) the incentives to retail private label (first party) products, and generates a bias toward underprovision of entry. Similar results apply after extending the analysis to delivery fulfilment by the marketplace, product differentiation with direct price competition on the platform, and dynamic incentives to invest and launch copycat products.