Table of contents

Marketplaces are not interested in brand protection, long-term price stability, or fair competition. Their primary goal is to increase sales volume and maximize commissions—and they achieve this by creating price wars, encouraging gray imports, and pressuring sellers into constant advertising.

While manufacturers struggle with price erosion and brand devaluation, marketplaces profit from every transaction—whether the seller wins or loses.

1. Marketplaces Reward Price Dumping

Why does price dumping happen?

  • Marketplaces use an algorithm-based ranking system that favors the lowest-priced sellers.
  • The Buy Box (default purchase option) is given to the lowest-priced offer, forcing sellers to compete on price rather than value.
  • Marketplaces incentivize discounting through promotions and flash sales, pressuring sellers to drop prices further.

The consequence:

  • Price wars force sellers to cut margins to unsustainable levels.
  • Retail partners stop stocking the product because they cannot compete with online prices.
  • The product loses perceived value, becoming a low-cost commodity instead of a premium brand.

Marketplaces do not care how much a seller earns—they only care about transaction volume.

2. Sellers Are Forced to Pay for Visibility

Even if a product has high demand, marketplaces limit organic visibility to push sellers into paid advertising.

How marketplaces profit from ad pressure:

  • Default search results prioritize paid listings, making organic visibility nearly impossible.
  • Sellers must constantly bid for top positions, driving up advertising costs.
  • Marketplaces change ad algorithms frequently, forcing sellers to spend even more to maintain visibility.

The consequence:

  • Ad costs eat into already thin profit margins.
  • Manufacturers end up paying to advertise their own brand, while gray importers and resellers benefit.
  • Sellers who don’t pay for ads disappear from search rankings, making organic growth impossible.

Marketplaces earn both from commissions and advertising—whether the seller profits or not.

3. Marketplaces Do Not Care About Gray Imports

Why do gray imports thrive on marketplaces?

  • Marketplaces do not verify seller sourcing—as long as the product is legitimate, it can be sold.
  • International price differences allow gray importers to buy cheap and resell globally.
  • Marketplaces do not enforce brand exclusivity agreements, allowing multiple sellers to compete against official distributors.

The consequence:

  • Manufacturers lose control over regional pricing, leading to parallel imports.
  • Distributors cannot justify marketing investments when cheaper products appear from unauthorized sources.
  • End customers get inconsistent product versions, damaging brand reputation.

Marketplaces benefit from gray imports because more sellers mean more commissions.

4. Marketplaces Promote Private-Label Products Over Brands

How do marketplaces compete with their own sellers?

  • They collect data on best-selling products and launch private-label alternatives.
  • They use internal search algorithms to prioritize their own brands over independent sellers.
  • They push manufacturers to lower prices through direct negotiations, forcing brands to compete with in-house alternatives.

The consequence:

  • Marketplaces become the manufacturer’s competitor, not just a sales channel.
  • Once a product is successful, a cheaper alternative is introduced under the marketplace’s own brand.
  • Sellers are locked into a system where they can never outcompete the platform itself.

Marketplaces manipulate sales data to launch private-label competitors against the very brands they sell.

5. The Marketplace Strategy: Create Dependency, Then Change the Rules

At first, marketplaces offer incentives for manufacturers to join—but once sellers become dependent, the rules change:

  • Commission rates increase.
  • Advertising becomes mandatory to maintain visibility.
  • Seller policies favor the marketplace’s own financial interests.

The consequence:

  • Manufacturers lose direct control over their customers and become completely dependent on the platform.
  • Pricing collapses across all sales channels, leading to long-term brand devaluation.
  • The marketplace dictates all business terms, leaving no room for independent pricing strategies.

The ultimate goal of a marketplace is to control the entire sales funnel and leave manufacturers with no alternative options.

Conclusion: Marketplaces Are Designed for Maximum Profit—at the Manufacturer’s Expense

The marketplace business model is built on volume, commissions, and advertising—not on protecting sellers or brands.
The more fragmented the market, the more profitable it is for the platform.

✅ The only way to avoid these risks is through strict distribution control:

  • Marketplaces should not be allowed to set prices—only authorized sellers should have the right to list the product.
  • Gray imports must be blocked at the distribution level to prevent price erosion.
  • Retail partners and wholesalers need structured pricing protections to maintain market stability.

🚀 The next step: Understanding why manufacturers cannot handle these challenges alone.

⬅️ Read Chapter 1: Why Marketplaces Are a Threat | 📖 Back to Table of Contents | ➡️ Read Chapter 3: Why Manufacturers Cannot Manage Sales Alone