| HBS Working Paper Series
Marketplace or Reseller?
Intermediaries 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). We model this as a choice between whether control rights over a non-contractible decision variable (the level of marketing activities) 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 are better suited to optimally tailor marketing activities for each specific product. We show that this tradeoff is shifted towards the reseller-mode when marketing activities create spillovers across products and when network effects lead to unfavorable expectations about supplier participation, whereas it is shifted towards the marketplace for long-tail products. We thus provide a theory of which products an intermediary should offer in each mode.
Hagiu, Andrei, and Julian Wright. "Marketplace or Reseller?" Harvard Business School Working Paper, No. 13-092, May 2013. (Revised July 2013.)