Competition of Local Marketplaces in the Face of Global Rivals

Amazon and Uber are popular examples of marketplaces that have become dominant global players in their industries across countries. The extant theory explains their domination with the winner-take-all competition logic. Empirically, however, we observe countries with industries in which local marketplaces that follow a distinctiveness logic successfully compete next to global ones. Our paper addresses this puzzle by developing a framework of local marketplace competition. We argue that the presence of local marketplaces in a country’s industry is likely (1) if regulatory heterogeneity between different localities is high and (2) if indirect network effects are dependent on the size of the local installed base. We illustrate the framework by analyzing the structure of the e-commerce and ride-hailing industries in Germany. Our paper has implications for research on and the practice of platform competition and global marketplaces.