Should Competing Sellers Adopt the Data Analytics Service to Enable Product Improvement in Online Marketplace

Abstract

More and more marketplace platforms choose to use the data gathered from consumers (e.g., customer search terms, demographics) to provide a data analytics service for third-party sellers, both encouraging innovations and improving the operations of the latter. Through adopting the data analytics service, a seller can enhance its competitiveness by improving the quality of its products when there is more than one seller offering substitutes. This study develops a game-theoretic model to characterize a scenario with a marketplace platform and two competing sellers that sell substitutable products and decide whether to adopt the data analytics service provided by the platform. Then we find that a seller’s decision of whether or not to purchase the service depends on the competitor’s decision and the two sellers’ absorptive capacities of knowledge. Furthermore, a seller can benefit from adopting the data analytics service only if the seller has a high absorptive capacity, which can help increase product quality. When only one seller adopts, the platform and competing sellers can benefit from the adoption if this seller’s absorptive capacity is high and the other’s is moderate. The sellers’ interests and social welfare can be aligned unless both sellers’ absorptive capacities are low or high.