Should platforms be allowed to sell on their own marketplaces?
Updated: Apr 8
A growing number of platforms such as those run by Amazon, Apple and Google act
as sellers on their own marketplaces. But should they be allowed to operate in this dual mode? And how about imitating third-party seller's products and steering consumers to their own products?
In this article (together with my co-authors Andrei Hagiu and Tat-How Teh) we build a model of a platform that operates as a dual marketplace and seller in order to explore the implications of this practice, and the calls to ban it, taking into account the platform's optimal choice of mode. Our analysis shows that an outright ban benefits third-party sellers. Surprisingly, even after allowing for innovation by third-party sellers, and imitation and self preferencing by the platform, banning the dual mode often results in lower consumer surplus or lower total welfare. Policies that ban the imitation of highly innovative third-party products or self-preferencing by the platform generally lead to preferable outcomes to an outright ban on the dual mode.