Dancing with rivals: How does platform’s information usage benefit independent sellers?

Abstract

Platforms greatly facilitate transactions between buyers and sellers. At the same time, this allows platforms to gather detailed information on transactions and tailor their strategies when introducing their own products that compete with independent sellers. Concerns have been raised that such an information advantage of platforms can hurt sellers. To investigate the impact of information usage by platforms, we analyze a dynamic game-theoretic model where competing sellers trade via a platform that has access to information at various levels of granularity. We show that the usage of more detailed and individualized information by the platform can actually benefit sellers. This occurs as sellers compete less intensely, anticipating that the platform would take advantage of more individualized information to target the more successful sellers. The competition relaxing effect is particularly strong when sellers are close substitutes and face little demand uncertainty within their product category. In such cases, both the platform and sellers could benefit from more individualized information usage, but consumers may be hurt.