Which Model to Choose for E-Commerce Platforms in Emerging Markets? Centralized Model or Decentralized Model

Problem definition: E-commerce is booming and gradually becomes the mainstream shopping method in the world incubating a variety of e-commerce platforms. However, the performance of operation models varies in different environments. Motivated by the prosperity of Shopify, a emerging e-commerce platform, we try to explore the performance differences between the Shopofy model and the traditional advertising model used by Amazon and Taobao. Methodology/results: We develop a model in which the traditional advertising model is a centralized model, in which sellers and buyers make transactions can only via the platform. The platform provides advertising services to sellers in getting traffic and make profit from sellers. The Shopify model is a decentralized model where the platform establishes independent websites for sellers and provide paid value-added services as well. We compare the performance differences of the two models under monopoly and competition markets. We find that the decentralized model generates more platform revenue when the matching probability and conversion rate are both high. The seller surplus and buyer surplus are higher under the decentralized model when the conversion rate is high. In the monopoly market, the seller surplus is better under the centralized platform when the matching probability is high, but is worse if competition exists. Managerial implications: The matching probability and the conversion rate play a key role in the choice of platform operation model. When poor search technology leads to a low matching probability, the centralized model is a better choice. However, when buyers have high requirements for shopping experience, the platform should give priority to satisfy buyers' wishes and choose the decentralized model, even though the advertising model can bring significant profits. In the competitive market, sellers who are in start-up stage are motivated to join the centralized platform and mature sellers prefer to join the decentralized platform