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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

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  • Wang, Jin

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.

Suggested Citation

  • Wang, Jin, 2021. "Do birds of a feather flock together? Platform’s quality screening and end-users’ choices theory and empirical study of online trading platforms," International Journal of Industrial Organization, Elsevier, vol. 75(C).
  • Handle: RePEc:eee:indorg:v:75:y:2021:i:c:s0167718720301211
    DOI: 10.1016/j.ijindorg.2020.102698
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    More about this item

    Keywords

    Two-sided markets; Asymmetric information; Quality screening; Duopoly platform competition; Structural estimation; Alibaba;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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