2784. Decentralized Ranking and Pricing at an Online Marketplace
Invited abstract in session TD-47: Consumer Demand and Marketing I, stream Retail Operations.
Tuesday, 14:30-16:00Room: Parkinson B08
Authors (first author is the speaker)
| 1. | Alireza KabirMamdouh
|
| Business, Stockholm University | |
| 2. | Gurhan Kok
|
| Koç University |
Abstract
In an online marketplace such as Amazon.com, third-party sellers and a marketplace operator compete to sell the same or near-substitute products. As the higher/prominent positions on the web page capture most of the sales and customer attention, the vendors compete to win those positions by offering more attractive prices. We study the positioning/ranking policy of the marketplace operator (MO) and its impact on pricing competition among the sellers. We model the price competition of two sellers under two ranking policies that MO can implement, named deterministic ranking (DR) and probabilistic ranking (PR). Under DR, the seller with the lowest price always gets the highest ranking. Under PR, however, the ranking is a randomized function of prices where a lower price implies a higher ranking. We characterize the unique Nash equilibrium of pricing under PR and the range of prices in the mixed-strategy equilibrium under DR. We show that DR leads to lower prices and lower seller profits than PR. The preference of MO over ranking policies is dependent on the profit margin and cost of the products. Unexpectedly, MO's profit is higher under PR when the profit margin of the product is relatively high. In general, MO can increase supply-side profits with a less competitive ranking rule and a higher commission rate. These results suggest that Amazon.com and other marketplaces can increase their own and sellers' profitability by switching to probabilistic ranking policies.
Keywords
- E-Commerce
- Game Theory
Status: accepted
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