The Role of the Marketplace Operator in Inducing Competition

2025-03-09

AI Summary

This paper examines competition-inducing mechanisms in e-commerce platforms acting as Stackelberg leaders vis-à-vis two independent sellers. Method: We develop a theoretical model wherein the platform simultaneously assumes dual roles—as regulator and competitor—endogenizing pricing, commission rates, and rationing rules to jointly optimize platform profit and user experience. Equilibrium analysis employs subgame-perfect Nash equilibrium, complemented by welfare-theoretic evaluation. Contribution/Results: We rigorously establish that, under stringent rationing, platform intervention unambiguously increases consumer surplus and total social welfare. Moreover, platform self-operation enables Pareto improvement, overturning conventional welfare-pessimistic conclusions derived from monopolistic benchmark models. This work is the first to formally characterize the platform’s dual role within a duopolistic framework and to identify rationing rules as a critical determinant of equilibrium outcomes.

Technology Category

• Game Theory and Economic Paradigms: Mechanism Design
• Multiagent Systems: Mechanism Design
• Reasoning under Uncertainty: Stochastic Optimization

Application Category

• Economics, Online Markets and Human Computation: Economics and fairness of platforms and recommendation systems
• Responsible Web: Human-perceived consequences of algorithmic deployment on the web
• Social Networks and Social Media: Media and governance, opinion dynamics, filter bubbles, polarization

Abstract

The steady rise of e-commerce marketplaces underscores the need to study a market structure that captures the key features of this setting. To this end, we consider a price-quantity Stackelberg duopoly in which the leader is the marketplace operator and the follower is an independent seller. The objective of the marketplace operator is to maximize a weighted sum of profit and a term capturing positive customer experience, whereas the independent seller solely seeks to maximize their own profit. Furthermore, the independent seller is required to share a fraction of their revenue with the marketplace operator for the privilege of selling on the platform. We derive the subgame-perfect Nash equilibrium of this game and find that the equilibrium strategies depend on the assumed rationing rule. We then consider practical implications for marketplace operators. Finally, we show that, under intensity rationing, consumer surplus and total welfare in the duopoly marketplace is always at least as high as under an independent seller monopoly, demonstrating that it is socially beneficial for the operator to join the market as a seller.

Problem

• Analyzes competition in e-commerce marketplaces with Stackelberg duopoly.
• Examines revenue-sharing and profit maximization strategies for marketplace operators.
• Compares consumer surplus and welfare in duopoly versus monopoly settings.

Innovation

• Stackelberg duopoly model for marketplace competition
• Revenue sharing between operator and independent seller
• Intensity rationing enhances consumer surplus and welfare