Internal Competition Between First-Party Retail and Third-Party Sellers: Pricing, Visibility, and Incentives in Hybrid Commerce Platforms

Abstract

Hybrid commerce platforms frequently operate as both marketplaces that host third-party sellers and retailers that sell first-party inventory. This dual role creates an internal competitive environment in which the platform can influence outcomes through pricing policies, fulfillment options, search and recommendation visibility, and contractual incentives. The resulting allocation of consumer attention across first-party and third-party offers affects not only short-run margins and fee revenue, but also long-run seller participation, product variety, and perceived platform reliability. This paper studies internal competition in hybrid platforms by connecting three mechanisms that are often analyzed separately: retail and marketplace pricing under platform-imposed fees, endogenous visibility shaped by ranking and featured-offer rules, and incentive design that governs seller entry and service quality. We develop a structural model in which consumers exhibit position-biased search and choose among offers with heterogeneous prices, delivery promises, and credibility signals. The platform selects visibility parameters and fee schedules while accounting for cannibalization between first-party margin and third-party commission revenue, as well as dynamic effects on seller participation. The model delivers testable predictions about how platform bias toward first-party retail changes equilibrium marketplace prices, featured-offer incidence, and entry thresholds. We then outline an empirical measurement strategy using product-level panels of prices, rank, inventory, and shipping attributes to identify causal effects of first-party presence and ranking changes. Finally, we conduct counterfactual analyses that clarify welfare and policy trade-offs among neutrality constraints, disclosure requirements, and structural separation.