Understanding the formation of reciprocal hyperlinks between e-marketplace sellers

Abstract

Online sellers in the e-marketplace cooperate with each other to increase resources and reduce transaction costs, both of which are crucial to the success of small businesses. A commonly used IT-enabled strategy is to ally with other online sellers by exchanging hyperlinks. This paper provides theoretical guidance to sellers on how to choose partners to improve reciprocity rates in hyperlink formation. Using the resource-based view and transaction-cost rationale, we examine the effects of market conditions and seller reputation on reciprocity link formation, using real transaction data from the largest online marketplace in China. The findings indicate that partners are less likely to exchange hyperlinks if the two sellers sharing a link are in highly overlapping markets and are geographically distant from one another, but the two factors weaken each other's negative effects. The study also explores the moderating effect of seller reputation, and finds that the negative effect of market commonality is weakened by seller reputation. The results of this study can be extended to other types of small business cooperation and are also useful to platform operators for designing mechanisms to encourage cooperation among online sellers.