Economics of Analytics Services on a Marketplace Platform

Analytics services provided by marketplace platforms are becoming an increasingly important tool for sellers to gain market insights. In this paper, we characterize the role of analytics services as improving sellers’ knowledge about the preference variation of the consumer market on a platform, which in turn helps sellers make better marketing decisions. Using a game theoretical model, we analyze the platform’s pricing and the sellers’ adoption strategies for analytics services in two different market scenarios – the concentrated market and the dispersed market. In addition, we identify two distinct effects of analytics services, namely the accuracy effect and the competition effect. Our results show that the competition effect manifests in opposite directions under different market scenarios: The competition-intensifying effect in the concentrated market and the competition-weakening effect in the dispersed market. With the analytics service, the sellers move toward each other and command a lower price in the concentrated market, whereas they move away from each other and command a higher price in the dispersed market. Interestingly, we find that although the platform always benefits from offering the analytics service, the sellers may not necessarily benefit from adopting the service. Additionally, our results show that, with the analytics service, the consumers as a whole are better off in the concentrated market, but worse off in the dispersed market. Another interesting finding is that, when the transaction fee for the marketplace service is high, the platform should charge a lower subscription fee to induce more sellers to adopt the analytics service.