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Steering in Online Markets: The Role of Platform Incentives and Credibility

Moshe A. Barach (), Joseph M. Golden () and John J. Horton ()
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Moshe A. Barach: Carlson School of Management, University of Minnesota, Minneapolis, Minnesota 55455
Joseph M. Golden: Collage.com, Brighton, Michigan 48116
John J. Horton: Sloan School of Management, Massachusetts Institute of Technology, Cambridge, Massachusetts 02142; National Bureau of Economic Research, Cambridge, Massachusetts 02138

Management Science, 2020, vol. 66, issue 9, 4047-4070

Abstract: Platform marketplaces can potentially steer buyers to certain sellers by recommending or guaranteeing those sellers. Money-back guarantees—which create a direct financial stake for the platform in seller performance—might be particularly effective at steering as they align buyer and platform interests in creating a good match. We report the results of an experiment in which a platform marketplace—an online labor market—guaranteed select sellers for treated buyers. The presence of a guarantee strongly steered buyers to these guaranteed sellers, but offering guarantees did not increase sales overall, suggesting financial risk was not determinative for the marginal buyer. This preference for guaranteed sellers was not the result of their lower financial risk, but rather because buyers viewed the platform’s decision to guarantee as informative about relative seller quality. Indeed, a follow-up experiment showed that simply recommending the sellers that the platform would have guaranteed was equally effective at steering buyers.

Keywords: information systems; IT policy and management; economics of IS; economics; microeconomic behavior; systems analysis and design (search for similar items in EconPapers)
Date: 2020
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