Description:

Speaker: Gaoyang Cai

Title: Product Ranking Rules and Competition in Two-Sided Markets

Abstract:
A growing number of e-commerce platforms design ranking rules for their marketplaces while offering products, apps, or games that directly compete with those from third-party sellers (TPSs). Policymakers are concerned with platform self-preferencing: platforms combine ranking and pricing powers to prioritize their products in search results, stifling competition. However, this paper shows that by jointly designing product rankings and pricing, a platform can leverage consumer search costs to reduce sellers' market power and intensify price competition, increasing consumer surplus and social welfare. Whether and to what extent a platform engages in self-preferencing depends on how much it internalizes consumer surplus and TPSs' revenues.  Consequently, the impacts of structural and behavioral policies that limit a platform's ranking and pricing power on profits and welfare remain unclear. To investigate, I develop a model that captures consumer search, seller price competition, and the platform joint design in product rankings and pricing. I combine the product click and market share data from Amazon Brand Analytics with product position data from Amazon.com to estimate the model. I will illustrate the economic mechanisms using examples, provide motivating evidence, and discuss model identification and estimation strategies.