Publications
Publications
- July 2023
- Management Science
Marketplace Scalability and Strategic Use of Platform Investment
By: Jin Li, Gary Pisano, Richard Xu and Feng Zhu
Abstract
The scalability of a marketplace depends on the operations of the marketplace platform as well as its sellers’ capacities. In this study, we explore one strategy that a marketplace platform can use to enhance its scalability: providing an ancillary service to sellers. In our model, a platform can choose whether and when to provide this service to sellers and, if so, what prices to charge and which types of sellers to serve. While such a service helps small sellers, we highlight that the provision of such a service can diminish the incentives of large sellers to make their own investment, thereby reducing their potential output. When the output reduction by large sellers is substantial, the platform may not want to provide the ancillary service and, even if it does, it may choose to set a price higher than its marginal cost to motivate large sellers to scale. The platform may also choose to strategically delay the provision of the service.
Keywords
Citation
Li, Jin, Gary Pisano, Richard Xu, and Feng Zhu. "Marketplace Scalability and Strategic Use of Platform Investment." Management Science 69, no. 7 (July 2023): 3958–3975.