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

ABSTRACT E‐commerce is booming and has gradually become the mainstream shopping method worldwide. In this paper, we focus on two distinct yet thriving models. One is the centralized model (e.g., Amazon and Taobao), the leading player in E‐commerce. The other is the decentralized model (e.g., Shopify and WooCommerce), which has become a rising star in recent years. We explore why they succeed and highlight their key characteristics, offering insights for emerging markets on which platform type better fosters growth and social welfare. We develop a stylized model to capture the essence of the centralized model, where transactions occur only through the platform, which offers advertising services to sellers. The decentralized model establishes independent websites for sellers and provides value‐added services to improve website display quality. We first consider the equilibrium when the two models operate independently without interference. Then, we analyze a competitive scenario. Here are some key findings. The centralized platform's optimal equilibrium always leads to advertised sellers achieving full or even overexposure. In the decentralized platform, when display quality is lower, it charges lower value‐added fees to attract more sellers; when quality is higher, it charges higher fees to target high‐value sellers. An interesting finding is that sellers tend to benefit more on the centralized platform when baseline traffic is high, but this advantage diminishes under competition. Under competitive conditions, sellers' and buyers' surplus peaks in centralized platforms when traffic is moderate. Comparing social welfare and platform profit, we find that most value in e‐commerce is captured by platforms.