Hybrid Marketplaces with Free Entry of Sellers

Abstract

We study a hybrid marketplace such as Amazon selling its own products and set- ting a commission rate on revenues of sellers engaged in monopolistic competition with free entry. For a large class of microfoundations based on a representative agent, the introduction of products by the marketplace is neutral on consumer welfare for a given commission, but exerts an ambiguous impact through its changes: a de- mand substitution mechanism pushes for a higher commission, but an extensive margin mechanism pushes for a lower commission aimed at attracting new sellers and more purchases on the marketplace. With constant demand elasticities, a hybrid marketplace sets lower (higher) commissions and increases (decreases) consumer wel- fare compared to a pure marketplace if its products face a less (more) elastic demand. We extend the analysis to alternative timing, Bertrand competition between sellers, endogenous product selection by the marketplace, specic commissions and advertising for product discovery.