Managing Quality on Two-Sided Platforms in the Presence of Provider Competition

Xiaokai Wu (), Li Jiang () and Xuan Zhao ()
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Xiaokai Wu: School of Business Administration, Faculty of Business Administration, Southwestern University of Finance and Economics, Chengdu, Sichuan 611130, China; and Operations and Decision Sciences, Lazaridis School of Business and Economics, Wilfrid Laurier University, Waterloo, Ontario N2L 3C5, Canada
Li Jiang: School of Management, Faculty of Business for Science and Technology, University of Science and Technology of China, Hefei City, Anhui Province 230052, China
Xuan Zhao: Operations and Decision Sciences, Lazaridis School of Business and Economics, Wilfrid Laurier University, Waterloo, Ontario N2L 3C5, Canada

Manufacturing & Service Operations Management, 2025, vol. 27, issue 5, 1532-1550

Abstract: Problem definition : We study two-sided markets in which competing platforms enforce service standards to control access of providers with heterogeneous service quality and employ pricing strategies to balance supply and demand. We further investigate the effectiveness of launching regulations, aimed to maximize social welfare, in enhancing quality, and we examine multihoming to yield additional insights. Methodology/results : We build a game-theoretic model wherein two platforms enforce service standards and prices, based on which heterogeneous providers and consumers decide whether and which platform to enroll. The transaction revenue from service matches is shared between the platform and the providers according to a pricing scheme, which comprises a service fee and a commission rate. Our results reveal that platforms’ strategies for balancing supply and demand depend on the consumer-to-provider ratio (termed as consumer size) and the value of high-quality service relative to that of low-quality service (termed as service value). Managerial implications : The standards enforced by platforms are not always monotone with respect to consumer size or service value. A large influx of consumers prompts platforms to enforce a high standard when service value is sufficiently high. Platforms can enforce different service standards, albeit only when they compete to balance providers and consumers. Platform competition can be a substitute for regulation in upholding and enhancing quality, especially when the commission rate is high. Regulation is more effective in enhancing quality on a monopolistic platform than on competing platforms. Relative to single homing, multihoming has inconsequential effects on the pattern for the enforcement of service standards, whereas it may lead platforms to raise prices. We alert regulators to consumer size, service value, and pricing scheme in addressing quality concerns in two-sided markets. Fostering competition can be more effective than launching regulations to enhance quality on platforms.

Keywords: two-sided market; service standard; pricing; competition; multihoming (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormsom:v:27:y:2025:i:5:p:1532-1550

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