Impact of Platform Owner’s Entry on Third-Party Stores

Abstract

One important decision faced by the owners of online marketplaces is whether they should enter the market and sell products directly to customers. In this study, we provide data-driven insights to managers by empirically investigating the impact of a platform owner’s entry on the demand of third-party stores and their potential reactions using transaction level data from a large e-commerce platform. Contrary to previous studies in mobile app platforms, our study shows that the demand of competing third-party stores decreases with the entry of the platform, especially for large third-party stores. We further show that the demand reduction is significant only in the offline channel and the reduction results from third-party stores’ defensive strategy to divert their offline customers away from the platform (i.e., disintermediation). Our findings indicate that platforms should carefully evaluate the nature of their markets before entering the market to compete with complementors, because they may lead third-party sellers to disintermediate from the platform. On the other hand, from the perspective of third-party sellers, disintermediation might be an overreaction to the entry of the platform, because their online demand is not significantly affected by platform entry based on our analyses.