Designing Online Platforms for Offline Services: the Bigger, the Better?

Leon Chu (University of Southern California)
Brian Wu (University of Michigan)

Abstract : Empowered by information technologies, online platforms enable service providers to offer customized services that Chinese consumers have increasingly desired. Despite its tremendous value-creation potential, offering customized services encourages greater opportunism from the service providers. While reputation-based mechanisms have been proposed to foster trust, their effectiveness is limited by the disadvantageous initial state of the Chinese industries. To address this problem, we propose a novel platform design where, from its inception, the platform deliberately limits the number of service providers below a certain threshold, even if they are homogenous. Without imposing this threshold, the competition among the service providers may lead to a unique equilibrium under which all the service providers shirk. In contrast, by imposing the threshold, the platform may induce a welfare-enhancing equilibrium where (i) the service providers on the platform enjoy higher capacity utilization than those outside and are motivated to exert effort by future concerns, and (ii) customers prefer service providers on the platform and are willing to pay a premium. We evaluate the implications of our proposed approach on platform profitability, specifically by comparing different payment schemes. We generalize the model regarding imperfect monitoring signals and the entry and exit of service providers. Our work sheds new light on how platform design can help reduce market frictions in economic exchanges and potentially influence the evolution of industries.

Market Orchestrators: the Effects of Certification on Complementor Behavior and Performance

Joost Rietveld (UCL School of Management)
Robert Seamans (NYU Stern School of Business)
Katia Meggiorin (NYU Stern School of Business)

Abstract : Multisided platforms serve two or more sets of users who are connected via an indirect network effect. Beyond pricing, the extent and scope of the interactions between the platform’s users depend on various other factors including product quality, exclusivity and users’ heterogeneous preferences. Platforms, thus, have to carefully balance the needs of its users through the enactment of governance strategies. Selective promotion of a subset of the platform’s users through certification is often part of this “market orchestration” process. We study how certification of complementors affects the bundle of products offered by those complementors as well as how it affects the platform’s demand-side users. We use a unique dataset of Kiva’s microfinance platform to take advantage of a quasi-exogenous shock: Kiva’s unexpected introduction of the Social Performance badging program in late 2011. We show that Kiva’s certification leads badged microfinance institutions to reorient their loan portfolio composition and that the extent of portfolio reorientation varies across microfinance institutions, depending on demand and supply-side factors. We further show that certified microfinance institutions who reorient their loan portfolios along the dimension of the certification gain greater demand-side benefits than certified microfinance institutions who do not reorient their loan portfolios.

Technological Platforms and Self-regulation: the Case of Safe-boda in Uganda

Brian S. Silverman (University of Toronto)

Abstract : Industry actors frequently seek to engage in self-regulation to enforce standards among industry participants. Yet such efforts at private regulation typically suffer from classic problems related to free riding and the tragedy of the commons. This paper proposes that technological platforms can serve a private-regulatory function when they 1) provide tools for monitoring or reporting malfeasance and 2) credibly restrict access to the platform, thus sanctioning malfeasants. The paper illustrates these points with a case study of Safe-Boda, an Uber-like motorcycle taxi firm in Uganda. Motorcycle taxis, known as boda-bodas, are notoriously dangerous for drivers, passengers, and pedestrians alike. Efforts at state regulation and industry self-regulation both failed in the mid-2000s and early 2010s. In contrast, the introduction of a ride-hailing technology platform that met both of the above conditions has succeeded at reducing unsafe driving, and also at matching riders with lower tolerance for unsafe rides with drivers who engage in safer practices.