Marketplace or Reseller?

By Andrei Hagiu, Julian Wright. Management Sciences, 2015

676 citations recorded by the source corpus.

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.

Subfields: Economics and Econometrics, Marketing, Strategy and Management

View Paper: https://www.semanticscholar.org/paper/bcfeef6023631a77b631f378899fc4d71f20488f

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Citations in the corpus

On the Antitrust Economics of the Electronic Books Industry (2014, background): “For more on a related set of issues, see, e.g., Hagiu and Wright (2013).”
Understanding platform business models: A mixed methods study of marketplaces (2017, background): “As they trigger network effects between the demand and supply side, they are particularly associated with rapid growth and the potential to dominate a market due to winner-take-all dynamics (Hagiu & Wright, 2015).”
The Agency Model and MFN Clauses (2017, background): “Hagiu and Wright (2013) consider the choice between what they call a “marketplace” (the agency model in my terminology) and a “reseller” (the wholesale model in my terminology).”
Information Sharing in an Online Marketplace with Co‐opetitive Sellers (2020, background): “Hagiu and Wright (2014) examine a monopoly online platform’s preference for functioning as either a reseller (i.e., reselling mode) or a marketplace (i.e., commission mode).”
Disruptive Innovation: An Intellectual History and Directions for Future Research (2018, neutral): “…of Management Studies incumbents’ business models (Raynor, 2011a, p. 93).12 However, temporary-lodging startup Airbnb has arguably introduced one through its unique business model, online matchmaking platform, and effective review/rating system (Hagiu and Wright, 2015; Parker et al., 2016).”
Introduction - Platforms and Infrastructures in the Digital Age (2018, background): “…supply chains in terms of “the allocation of control rights between independent suppliers and the intermediary over non-contractible decisions (prices, advertising, customer service, responsibility for order fulﬁlment, etc.) pertaining to the products being sold” (Hagiu and Wright 2015, p. 3).”
Platform Information Transparency and Effects on Third‐Party Suppliers and Offline Retailers (2021, background): “Hagiu and Wright (2015) assume that an intermediary and suppliers have private information about the ideal choice of marketing activities.”
Agency Selling or Reselling? Channel Structures in Electronic Retailing (2016, background): “Hagiu and Wright (2014) find that 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.”
The Future of Work in the ‘Sharing Economy’. Market Efficiency and Equitable Opportunities or Unfair Precarisation? (2016, positive): “Building on the theory of the firm, they frame these choices as a trade-off between 'being a MSP or a vertical integrated firm ' (Hagiu & Wright, 2015c), or between 'controlling versus enabling' (Hagiu & Wright, 2015a).”