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Do birds of a feather flock together? Platform’s quality screening and end-users’ choices theory and empirical study of online trading platforms

Jin Wang

International Journal of Industrial Organization, 2021, vol. 75, issue C

Abstract: We propose a model which incorporates both quality and quantity in end-users’ interactions and analyze how platforms can use quality screening to alleviate information asymmetry and motivate end-users’ participations. We address the question from theoretical and empirical perspectives. In the theory, we build a model in which two platforms compete but only one of them screens sellers’ products. We show that the quality screening influences consumers’ expectations of product quality and their choices of sellers and platforms. The resulting screening effect, together with the network and competition effects, further drives sellers to enter different platforms. The equilibrium result indicates that sellers’ incentives to join the platform that screens products follow a non-monotonic relationship with respect to the observable quality of products. We estimate the model in Alibaba’s Platforms - Tmall and Taobao. The results are consistent with the theory. Counterfactual analysis suggests quality screening benefits consumers and Alibaba.

Keywords: Two-sided markets; Asymmetric information; Quality screening; Duopoly platform competition; Structural estimation; Alibaba (search for similar items in EconPapers)
JEL-codes: D43 L13 L14 L15 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1016/j.ijindorg.2020.102698

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