Managing Market Thickness in Online Business-to-Business Markets

Managing Market Thickness in Online Business-to-Business Markets

By
Kostas Bimpikis, Wedad J. Elmaghraby, Ken Moon, Wenchang Zhang
Management Science. December
2020, Vol. 66, Issue 12, Pages 5783–5822
We explore marketplace design in the context of a business-to-business platform specializing in liquidation auctions. Even when the platform’s aggregate levels of supply and demand remain fixed, we establish that the platforms ability to use its design levers to manage the availability of supply over time yields significant value. We study two such levers, each using the platforms availability of supply as a means to incentivize participation from buyers who decide strategically when/how often to participate. First, the platforms listing policy sets the ending times of incoming auctions (hence, the frequency of market clearing). Exploiting a natural experiment, we illustrate that consolidating auctions ending times to certain weekdays increases the platforms revenues by 7.3% mainly by inducing a higher level of bidder participation. The second lever is a recommendation system that can be used to reveal information about real-time market thickness to potential bidders. The optimization of these levers highlights a novel trade-off. Namely, when the platform consolidates auctions ending times, more bidders may participate in the marketplace (demand-side competition); but ultimately auctions for substitutable goods cannibalize one another (supply-side competition). To optimize these design decisions, we estimate a structural model that endogenizes bidders dynamic behavior, that is, their decisions on whether/how often to participate in the marketplace and how much to bid. We find that appropriately designing a recommendation system yields an additional revenue increase (on top of the benefits obtained by optimizing the platforms listing policy) by reducing supply-side cannibalization and altering the composition of participating bidders.