Marketplace or Reselling? A Signalling Model

Abstract

This paper examines optimal managerial decisions in markets where goods may be distributed directly by their producers and/or by an intermediary akin to an online platform. We characterize the optimal design of the platforms’ trading strategy, under two distinct business models: a marketplace mode and a reselling model. Then, we identify under which conditions the marketplace model is more profitable than the reselling model, assuming that the platform has an informational advantage over manufacturers due to its superior information (Big Data) on the consumers’ willingness to pay for the good. This choice turns out to signal the value of the good: the marketplace mode, which allows to internalize the spillover between the two sites, is always preferred for a low value good. The reselling/ merchant mode, which allows to take advantage of the platform’s better information, is more likely to be selected in the case of high-value goods (leading to a separating equilibrium) provided that the externalities between the vending sites are not too strong and the difference between consumers’ willingness to pay for the high and the low-value goods is large enough. A pooling equilibrium in which the agency mode is always selected is more likely in the opposite cases. For intermediate parameter values, separating, hybrid and pooling equilibria coexist.