Research

This paper examines how a platform facing disintermediation (marketplace leakage) optimally deploys a hybrid business model that combines marketplace and reseller functions. We develop a game-theoretic framework featuring a monopolistic platform and an integrated supplier acting as a wholesaler to the platform and a retailer to consumers. Consumers who discover the supplier on the marketplace can bypass the platform and purchase from the supplier’s direct channel, creating a leakage problem for the platform. Additionally, demand uncertainty exposes the platform to inventory risk, which prevents it from adopting a pure reseller mode. In equilibrium, the supplier sets a wholesale price such that the platform optimally deploys the hybrid model, balancing the risk-free marketplace mode and the higher-margin reseller mode. Notably, when consumers’ leakage propensity is relatively strong, a worsening leakage problem can shift the platform back toward the marketplace mode. Extending the baseline analysis, we further examine scenarios in which the platform may implement a non-hybrid business model. In particular, the platform deviates to a pure reseller mode if the supplier can costlessly provide a product return policy, but prefers a pure marketplace mode when it can invest in transaction benefits at a sufficiently low cost or when it faces fierce supplier competition.

Leakage presents a significant challenge for online platforms (namely, marketplaces). While buyers rely on these platforms to discover sellers and benefit from convenient purchasing processes and reliable customer service, sellers may attempt to circumvent the platforms and complete transactions directly with buyers, thereby avoiding transaction fees. This behavior results in a loss of revenue for the platforms. Assuming that buyers face heterogeneous switching costs when purchasing through the direct channel, I develop a model in which two rival platforms are confronted with the leakage problem arising from a common direct channel. In the baseline analysis, I explore the spillover effects of one platform’s choice of transaction fee on its rival and examine the impact of their interactions on equilibrium outcomes. In equilibrium, the smaller platform charges a higher transaction fee, and that the difference in fees between the two platforms increases with the difference in their market shares. Building on the benchmark, I investigate several strategies that platforms can adopt to mitigate leakage in subsequent extensions, including limiting communication, charging referral fees, and investing in transaction benefits.​

This paper examines theoretically and empirically the welfare effects of differential pricing for Internet traffic in a network market. We first present a model of differential pricing by a monopolist Internet service provider (ISP), wherein charges are levied on content providers for traffic flow and on consumers for Internet access. Content providers differ in their demand for Internet traffic and in their value to consumers (network effects). Under linear demand, we show that compared to uniform pricing, differential pricing based solely on network effects is welfare-enhancing, while purely elasticity-based differential pricing reduces content provider surplus and social welfare. The welfare effects become ambiguous when both network effects and demand elasticities differ across content providers. Using a unique dataset on monthly transactions between a large ISP and major content providers in China, we estimate the model and quantify the welfare effects using demand and cost estimates. Counterfactual analysis shows that consumer surplus and content provider surplus increase under differential pricing; however, a disproportionate share of the welfare gain is captured by several large content providers, while medium-sized content providers tend to be worse off.

This paper investigates the impact of broadband Internet on the provision of public media in a large developing country. We use new panel data on public broadcasting at the province level from 2005 to 2017 and a control function approach exploiting variation in China’s centralized roll-out of digital infrastructure. We find that rising broadband penetration has substantial negative impacts on the quantity of public media provision—including news, public-service programs, and entertainment—in China’s local radio and television. Except for news, these effects are driven by changes in both the extensive margin (i.e., fewer channels) and the intensive margin (i.e., less broadcasting per channel). While industry ad revenues decrease significantly, ad intensity and volume per channel increase with higher broadband penetration rates. Lastly, we find that broadband Internet attracts young, educated, and urban viewers away from television but has no effect on the elderly, the less educated, and those with low-paying jobs.