Retailer-led Marketplaces

Leading retailers have opened up their online storefronts to competitors by operating marketplaces for third party sellers. We develop a model of entry and price competition at the product market level, and show that the retailer softens competition through control of the storefront and benefits from third party sellers by learning about products and mitigating his own capacity constraints. We examine policy interventions and find that regulation of marketplace fees has the strongest potential to increase welfare outcomes. Our model provides novel insights into the mechanisms at play in retailer-led marketplaces and explains their prominent role in online retail.