Marketplace or reseller?
By: Andrei Hagiu, Julian Wright
Contributors: Wright, Julian; Harvard Business School
Series: Working paper / Harvard Business School -- 13-092; Working paper (Harvard Business School) -- 13-092
Publisher: Harvard Business School
Published: 2013
Place of publication: Boston]
Language: eng
Number of pages: 48
Description: An intermediary can choose between functioning as a marketplace, on which suppliers sell their products directly to buyers, or as a reseller, purchasing products from suppliers and selling them to buyers. In our model, this choice comes down to whether residual control rights over non-contractible decision variables are better held by suppliers (the marketplace mode) or by the intermediary (the reseller mode). We focus on a single non-contractible decision variable - the level of demand-enhancing marketing activities. The reseller is better able to coordinate these activities across products, whereas the marketplace mode benefits from allowing independent suppliers to tailor their marketing activities to local information about buyer demand. In the benchmark setting, the marketplace mode is preferred if and only if the variance of local information exceeds the squared value of spillovers from marketing activities across products. We explore several generalizations, showing how the benchmark tradeoff is modified in different settings.
Notes: "May 2013."--Publisher's Web site.

Includes bibliographical references (pages 34-36).