The rise of e-commerce has inspired entrepreneurs to start their businesses online. E-commerce platforms, such as eBay, Amazon Marketplace, and Taobao, feature low barriers of entry to their sellers, as there is very low cost involved in entering an online marketplace and becoming a seller. In the meantime, we observe that many sellers choose to incur a much higher cost and enter the marketplace by taking over an existing seller’s account. We identify an interesting problem faced by entrants to online marketplaces: should they enter as new or should they take over another seller? Entrants’ decisions are complicated by several factors, including the reputation of the existing seller, the entrant’s capability, and the information asymmetry between the entrant and the incumbent. We develop an economic model to study the interactions between an entrant and an incumbent in an e-commerce marketplace. We discover that reputation plays an important role in the entrant’s competition-takeover decision. Our findings carry useful insights for e-commerce platforms in understanding the impact of entrants on the existing community of sellers.
Online reputation Competition Electronic commerce Analytical modeling Economics of IS
This is a preview of subscription content, log in to check access.
Ba S, Pavlou PA (2002) Evidence of the effect of trust building technology in electronic markets: price premiums and buyer behavior. MIS Q 26(3):243–268CrossRefGoogle Scholar
Chen Y (2001) On vertical mergers and their competitive effects. RAND J Econ 32(4):667–685CrossRefGoogle Scholar
Chen J, Fan M, Li M (2016) Advertising versus brokerage model for online trading platforms. MIS Q 40(3):575–596CrossRefGoogle Scholar
Dewan S, Hsu V (2004) Adverse selection in electronic markets: evidence from online stamp auctions. J Ind Econ 52(4):497–516CrossRefGoogle Scholar
Ghose A (2009) Internet exchanges for used goods: an empirical analysis of trade patterns and adverse selection. MIS Q 33(2):263–291CrossRefGoogle Scholar
Holsapple CW, Sasidharan S (2005) The dynamics of trust in B2C e-commerce: a research model and agenda. IseB 3(4):377–403CrossRefGoogle Scholar
Jin GZ, Kato A (2006) Price, quality, and reputation: evidence from an online field experiment. RAND J Econ 37(4):983–1004CrossRefGoogle Scholar
Kim DJ (2012) An investigation of the effect of online consumer trust on expectation, satisfaction, and post-expectation. IseB 10(2):219–240CrossRefGoogle Scholar
Malmendier U, Tate G (2008) Who makes acquisitions? CEO overconfidence and the market’s reaction. J Financ Econ 89(1):20–43CrossRefGoogle Scholar
Saloner G (1987) Predation, mergers, and incomplete information. RAND J Econ 18(2):165–186CrossRefGoogle Scholar