We examine the intersection of two major trends at online retail platforms: the emergence of retail media, which allows sellers to advertise on retail platforms alongside selling their products, and the platforms’ switch away from reselling towards marketplace formats. We study whether and when a retail platform benefits from introducing sponsored advertising, and how the effects change with the platform’s selling format. We consider two sellers with different qualities selling through a retail platform. We find that counter to our intuitions, offering sponsored advertising may not always benefit the platform, depending on its selling format. Specifically, sponsored advertising benefits the platform under the reselling format but may hurt its revenue under the marketplace format. Furthermore, we find that when considering the effect of selling formats, the platform should offer retail media when the quality difference between the sellers is either significant or negligible, rather than moderate. Finally, consumers benefit from retail media in a larger parameter space than the platform does, suggesting that retail platforms may be incentivized to offer too “little”, rather than too “much” advertising. Our research provides timely guidance for online platforms to finetune their strategies and for regulators to evaluate the ever-changing landscape of retail media.
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