Abstract

E-commerce platforms have altered the retailing industry by operating under a dual mode: they not only act as retailers selling products of their own, but also provide online marketplaces where third-party sellers compete and offer products. How does this market environment affect the pass-through of cost shocks to consumer prices? In this paper, we aim to answer this question by developing theoretical models to analytically characterize pass-through mechanisms, and by providing empirical pass-through estimates. Our theoretical results show that, under quantity competition, cost pass-through is higher in an industry operating under a dual-mode platform, compared to a benchmark setting without the platform. Under price competition, the presence of a dual-mode platform can generate price dispersion. With asymmetric (firm-specific) cost shocks, we find heterogeneity in pass-through of one’s own cost and the competitor’s cost. We introduce data from Amazon and provide reduced-form estimates of pass-through, using recent cost shocks that affected distinct product markets. Our early-stage results suggest asymmetric pass-through dynamics across seller types, with pass-through being lower when Amazon is the seller.