Should platforms be allowed to sell on their own marketplaces?

Abstract

A growing number of digital platforms operate in a dual mode: running marketplaces for third‐party products, while selling their own products on those marketplaces. We build a model to explore the implications of this controversial practice. We analyze the tradeoffs that arise from a regulatory ban on the dual mode, showing how such a ban can harm consumer surplus and welfare even when the platform would otherwise engage in product imitation and self‐preferencing. In the empirically most relevant scenarios, policies that prevent platform imitation and self‐preferencing generate better outcomes than an outright ban on the dual mode.

More Than Infrastructure Providers – Digital Platforms' Role and Power in Retail Digitalisation in Germany

“…Besides platforms, they simultaneously sell products on a marketplace that they operate (Hagiu et al . 2020). This represents a controversial practice with far‐reaching implications for retailers participating on the digital platforms and the respective power asymmetries.…”

“…As Hagiu et al . (2020, p. 1) point out: ‘This practice has raised regulatory concerns […] and led to investigations in Europe and the United States, with calls from various commentators and politicians for Amazon to be forced to separate its retail business from its marketplace.’ This is particularly the case for Amazon, next to the selling of its own products, the vertical expansion of the platform for instance includes Amazon Pay, Amazon Prime and the fact that Amazon handles more and more of their own logistics.…”

Hybrid Platform Operation Decision of Retail Enterprises

“…In the mobile application market and video game market, Apple, Google, Microsoft, and Sony have also established their trading markets as well as self-operated business. Scholars think that an enterprise that developing not only two-sided user interaction markets, but also self-operated business, can be regarded as a hybrid platform mode (also known as mixed platforms, dual-role platforms, or dual-mode platforms) [1][2][3][4][5]. The emergence of the hybrid platform mode is driven by business practices.…”

“…When the unit retail price is in the middle range, the operating enterprise should adopt the hybrid platform mode compared to the pure platform mode. (3) The excessive price competition between the self-operated business and the third-party sellers is magnified by the existence of cross-network externalities, resulting in a strong anti-competitive effect, affecting the profits of the hybrid platform. Our research gives the decision-making path of the operating enterprise, as follows: (1) If the hybrid platform and the third-party sellers sell complementary products, in the range of all distribution costs and unit retail prices, the profit of choosing the hybrid platform mode is always the best, compared with pure merchant and pure platform modes.…”

“…When the unit retail price is in the middle range, the operating enterprise should adopt the hybrid platform mode compared to the pure platform mode. (3) The excessive price competition between the self-operated business and the third-party sellers is magnified by the existence of cross-network externalities, resulting in a strong anti-competitive effect, affecting the profits of the hybrid platform.…”