Location Divide in Digital Platforms? Evidence from a Natural Experiment

Lanfei Shi (), Raveesh Mayya and Shun Ye ()
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Lanfei Shi: McIntire School of Commerce, University of Virginia, Charlottesville, Virginia, United States 22903
Shun Ye: School of Business, George Mason University, Fairfax, Virginia, United States 22030

No 22-02, Working Papers from NET Institute

Abstract: With the rise of international e-commerce, geolocation boundaries seem to have become blurred and less relevant. Yet, emerging evidence has shown that consumers tend to exhibit location preferences in choosing sellers (e.g., U.S. consumers may prefer products made domestically). While the important role of salient information signals such as price and product ratings has been recognized, our study seeks to examine a less investigated information signal—the seller’s location. We ask whether and how the disclosure of seller location affects the product sales and pricing strategies of international sellers as compared to domestic sellers. We identify such effects by leveraging an exogenous policy change on Amazon that mandated all sellers to disclose their business locations. We further exploit the difference between the announcement of the policy change and its actual implementation to examine potential forward-looking responses from sellers upon the policy announcement. Our analyses reveal that, upon public announcement of the policy, international sellers proactively adjust their pricing strategies ahead of the policy implementation, leading to sales improvement. However, we observe a sales reversal effect upon the policy implementation—disclosing seller location not only cancels the gain from aggressive pricing for international sellers but also exacerbates their sales gap from their domestic counterparts. Such a home bias, which we find to be behavioral bias, creates a competitive disadvantage for international sellers, leading to a location divide on the global platform that may stifle cross-side network effects on the platform. Our findings shed light on the unintended consequences of information disclosure and provide valuable implications for managing global e-commerce platforms.

Keywords: seller location disclosure; policy change; home bias; e-commerce; digital platforms; information signals; unintended consequence (search for similar items in EconPapers)
JEL-codes: D82 L14 L43 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2022-09
New Economics Papers: this item is included in nep-pay and nep-reg
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