Startup Survival on Digital Platforms: An Examination of Amazon's Influence over E-Commerce Entrepreneurs

Project: Research

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Description

The growth and development of online retail giants such as Amazon.com has given many startups online platforms to conduct a large portion of their sales over the Internet. Using Amazon's retail platform, startups theoretically have access to millions of customers, can set their own prices, and determine how their products are shipped, all without the need to invest in expensive physical overhead (e.g., physical stores, warehouses). However, with nearly 40 percent of all U.S. online sales occurring on its platform, Amazon possesses significant clout over all its third-party sellers. For example, Amazon has recently been reported to not only have coerced several startups to remove products from other platforms that are listed at lower prices, but to also have introduced private-label brands that compete directly with third-party products. The breadth and depth to which these actions influence platform-dependent startups has yet to be systematically explored in the academic literature. In this project we fill this knowledge gap by determining whether Amazon's anticompetitive interventions in its own platform undermine startup performance and survivability. The current knowledge gap may be caused by decreased scrutiny from regulators of the online retail marketplace secondary to the benefit of lower product prices afforded to online consumers which likely overshadows the financial struggles of online platform usingstartups. Unfortunately, platform-dependent sellers cannot afford to lose access to a platform's massive customer base and are financially constrained to the point where they must comply with any changes to the platform's rules and conditions, many ofwhich may discourage competition and product innovation. Amazon's retail platform is an ideal environment to evaluate this likelihood since we observe the product sales channel. Using the universe of product information, sales, prices, and startup sellerinformation, we study the economics of Amazon's digital platform and the role it plays in facilitating or hindering entrepreneurship. We seek to determine whether Amazon's unilateral changes in its platform's ecosystem has a detrimental impact on startup survival and performance. Specifically, we investigate how startup product sales, product innovation, likelihood of securing venturecapital financing, and likelihood of going bankrupt or being acquired are affected by Amazon's private-label brand introductions and the removal of the "Buy Now" button on the webpages of certain products for which Amazon's algorithms detect lower prices from other online retailers. Our goal is to establish empirically a source of potential sales risk born on startups that are locked to a particular digital platform. 

Detail(s)

Project number9043423
Grant typeGRF
StatusActive
Effective start/end date1/01/23 → …