Seller promotion and competition on decentralized two-sided platforms

Abstract

Purpose This paper aims to explore the promotion decisions of heterogeneous sellers on a decentralized platform under competitive conditions and analyze how seller behaviors impact platform profit, seller revenue, buyer surplus and social welfare. Design/methodology/approach This paper considers a Cournot model consisting of a platform charging a commission rate and two sellers with different conversion rates and browsing costs. Promotion efforts by sellers can increase traffic, but they also incur promotion costs for sellers. The sellers decide on promotion effort by weighing these two effects. The authors also explore the equilibrium when the platform charges a fixed usage fee. Findings The seller’s profit improves as its conversion rate increases and worsens as browsing costs increase. Also, increasing the commission rate charged by the platform makes the seller invest less in promotional efforts. Therefore, the platform must consider this trade-off to determine an optimal rate. The analysis shows that the seller with a high conversion rate and high browsing cost plays a greater role in generating more overall revenue. When the market favors such a seller, the platform tends to charge less in order not to impair its profitability. Originality/value This paper incorporates conversion rate, buyer’s browsing cost, unit promotion cost and the fee charged by the platform into the model to study sellers’ promotion decisions on decentralized platforms.