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