Marketplace Expansion Through Marquee Seller Adoption: Externalities and Reputation Implications

In the race to establish themselves, many early-stage online marketplaces choose to accelerate their growth by adding marquee (established brand name) sellers. We study the implications of marquee seller entry on smaller, unbranded sellers in a marketplace when both unbranded sellers and marquee sellers can vary vertically across reputation (referred to as sellers’ quality). Although recent literature has shown that higher-quality unbranded sellers fare better than their lower-quality peers, we posit that this may not hold for entrants of any quality. To this end, we collaborate with an online business-to-business platform and exploit the entry of two marquee sellers of vastly differing quality. Using a difference-in-difference-in-differences framework, we causally identify the effect. We find that, although higher-quality unbranded seller revenues increase relative to low-quality unbranded sellers when the entrant is of superior quality (consistent with the literature), the effect is reversed when the entrant is of inferior quality. Further, unbranded sellers change their supply quantities such that the platform’s average supply quality shifts in the direction of entrant quality. Using a stylized theoretical model, we identify two mechanisms that drive our findings: (i) new buyers brought in by the entrant disproportionately favor unbranded sellers who are quality neighbors to the entrant and (ii) the unbranded seller’s ability to adjust their supply quantities. Most notably, the choice of marquee sellers, examined through the lens of their externality on unbranded sellers, can foster or undermine the platform’s long-term growth objectives. This paper was accepted by Victor Martinez de Albéniz, operations management. Supplemental Material: The online appendices and data files are available at https://doi.org/10.1287/mnsc.2022.03606 .