Electronic B2B Marketplaces with Different Ownership Structures
Byungjoon Yoo, Vidyanand Choudhary, Tridas Mukhopadhyay
Management Science · 2007 · Volume 53 · Issue 6
Abstract
This paper analyzes electronic marketplaces with different ownership structures: biased marketplaces and neutral marketplaces. Biased marketplaces can be either buyer-owned or supplier-owned, whereas neutral marketplaces are owned by independent third parties. We develop a single-period model, with fulfilled expectations equilibrium. The buyers experience positive network effects that are a function of the number of suppliers and the suppliers receive similar positive network effects depending on the number of buyers. We develop a general model with atomistic buyers and suppliers. We find that biased marketplaces set prices to induce greater participation (demand) from both buyers and suppliers compared to a neutral marketplace. This counterintuitive result can be understood in the context of the positive cross-network effects experienced by buyers and suppliers and the added benefit to the owner of a biased marketplace from participating in the marketplace. Biased marketplaces also provide greater social welfare compared to neutral marketplaces.
Keywords
business-to-business, ownership, network effect, intermediary, marketplace
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