Amazon Entry on Amazon Marketplace

Abstract

There is an active policy debate seeking to understand whether Amazon first-party entry in competition with third-party merchants harms these merchants, and ultimately consumers, on Amazon Marketplace. Some argue that the exploitation of third-party data permits seller expropriation and reduces innovation while others claim that such entry permits the internalization of important externalities, benefiting consumers and merchants alike. We seek to inform this debate by measuring the predictors and effects of Amazon first-party retail entry on consumer and third-party merchant outcomes in the Home & Kitchen department of Germany’s Marketplace between 2016 and 2021. We find Amazon entry both within and across products is associated with modest positive effects on both consumer and third-party merchant outcomes more consistent with mild market expansion than with appropriating third-party sales. We find that both Amazon and large third-party merchants’ entry is associated with fewer subsequent new product introductions, but that these are consistent with regression to the mean rather than causal effects on innovation. Finally, we find that the predictors of Amazon’s within-product entry decisions are more consistent with a strategy that makes Marketplace more attractive to consumers than of third-party seller expropriation, including consideration of predictors based on aggregated Marketplace data. While the empirical setting presented challenges for estimating causal effects, our results are broadly inconsistent with systematic adverse effects of Amazon entry on Amazon Marketplace.