Platform sharing: From reseller to marketplace

Abstract We examine the motivations for an online retailer that exclusively resells goods to open its platform to competing sellers. We further examine competing seller’s incentives to join such a platform. The retailer can receive rent and commission from the competing sellers or third-party (3P) sellers who join the platform. Further, these 3P sellers can increase their customer reach through the retailer’s platform. However, the competition between them may intensify as both parties sell identical products on the same platform. This study develops a game-theoretic model to formulate the strategic interaction between an online retailer and a 3P seller who are selling an identical product in the market. According to our findings, opening the platform changes the rules of the game. By charging rent and commission, the retailer can reduce their price competition with the 3P seller. In particular, the retailer has more control over the 3P seller’s retail price through charging commission. Hence, both parties benefit from coopetition if consumers are insensitive to price changes. Certainly, if consumers are sensitive to price changes, it may not be in the retailer’s interests to open up the platform. Additionally, platform sharing provides consumers with an additional channel from which to purchase products. However, consumers are at a disadvantage as they have to pay a higher price than they did before the execution of the platform opening strategy. In conclusion, the retailer’s choice to open up its platform decreases social welfare (SW).