Product Selection in Online Marketplaces

Abstract

A marketplace such as Amazon hosts a variety of products by third party sellers and acts as a first party or private label retailer. Assuming an advantage of Amazon in logistics and of sellers in marketing, we investigate whether entry by Amazon is excessive from the point of view of consumers (as through self-preferencing to win the Featured Offer position or promote its own products). With competitive sellers, entry may be either over-provided or under-provided, but the incentives of Amazon and consumers are correctly aligned for a family of power surplus functions (generating for instance linear, isoelastic and log-linear demands). Platform competition for customers reduces commissions and prices preserving the efficiency result. Market power by sellers increases (reduces) the incentives to retail private label (first party) products, and generates a bias toward under-provision of entry. We also study issues related to delivery fulfillment by Amazon, advertising and dynamic incentives to launch products on the platform.