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

Author

Listed:
  • 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)

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.

Suggested Citation

  • Moshe A. Barach & Joseph M. Golden & John J. Horton, 2020. "Steering in Online Markets: The Role of Platform Incentives and Credibility," Management Science, INFORMS, vol. 66(9), pages 4047-4070, September.
  • Handle: RePEc:inm:ormnsc:v:66:y:2020:i:9:p:4047-4070
    DOI: 10.287/mnsc.2019.3412
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    References listed on IDEAS

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    Cited by:

    1. Apostolos Filippas & John J. Horton & Richard J. Zeckhauser, 2020. "Owning, Using, and Renting: Some Simple Economics of the “Sharing Economy”," Management Science, INFORMS, vol. 66(9), pages 4152-4172, September.

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