Self-Preferencing in E-Commerce Marketplaces: The Role of Sponsored Advertising and Private Labels

Fei Long () and Wilfred Amaldoss ()
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Fei Long: Department of Marketing, Kenan-Flagler Business School, University of North Carolina at Chapel Hill, Chapel Hill, North Carolina 27599
Wilfred Amaldoss: Department of Marketing, Fuqua School of Business, Duke University, Durham, North Carolina 27708

Marketing Science, 2024, vol. 43, issue 5, 925-952

Abstract: Traditionally, e-commerce marketplaces have enabled third-party sellers to sell to potential consumers and have earned commission from the sales. In recent years, e-commerce platforms have begun to leverage private label and sponsored advertising to generate additional revenue. Using a game-theoretic model, we examine when and why a platform may seek to give preference to its private label in sponsored advertising, and its impact on consumers and third-party sellers. Our analysis shows that self-preferencing hurts consumers even though in equilibrium the platform offers the private label at a price lower than the price of third-party sellers. Furthermore, such self-preferencing by the platform can improve the profits of some third-party sellers. We also find that it is not always optimal for the platform to self-preference its private label in sponsored advertising, particularly when advertising significantly increases demand. Moreover, the private label and sponsored advertising function as complements improving the platform’s profits. History: Anthony Dukes served as the senior editor for this article. Supplemental Material: The online appendix is available at https://doi.org/10.1287/mksc.2022.0262 .

Keywords: E-commerce marketplace; hybrid platforms; private label; sponsored advertising; self-preferencing (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (2)

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