IDEAS home Printed from https://ideas.repec.org/a/inm/ormnsc/v66y2020i9p4047-4070.html
   My bibliography  Save this article

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
    as

    Download full text from publisher

    File URL: https://doi.org/10.287/mnsc.2019.3412
    Download Restriction: no
    File URL: https://libkey.io/10.287/mnsc.2019.3412?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Christopher T. Stanton & Catherine Thomas, 2016. "Landing the First Job: The Value of Intermediaries in Online Hiring," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 83(2), pages 810-854.
    2. Grossman, Sanford J, 1981. "The Informational Role of Warranties and Private Disclosure about Product Quality," Journal of Law and Economics, University of Chicago Press, vol. 24(3), pages 461-483, December.
    3. Ajay Agrawal & John Horton & Nicola Lacetera & Elizabeth Lyons, 2015. "Digitization and the Contract Labor Market: A Research Agenda," NBER Chapters, in: Economic Analysis of the Digital Economy, pages 219-250, National Bureau of Economic Research, Inc.
    4. John J. Horton, 2019. "Buyer Uncertainty About Seller Capacity: Causes, Consequences, and a Partial Solution," Management Science, INFORMS, vol. 65(8), pages 3518-3540, August.
    5. John Horton & William R. Kerr & Christopher Stanton, 2017. "Digital Labor Markets and Global Talent Flows," NBER Chapters, in: High-Skilled Migration to the United States and Its Economic Consequences, pages 71-108, National Bureau of Economic Research, Inc.
    6. Chong Ju Choi & Carla C. J. M. Millar & Caroline Y. L. Wong, 2005. "Knowledge and the State," Palgrave Macmillan Books, in: Knowledge Entanglements, chapter 0, pages 19-38, Palgrave Macmillan.
    7. Chris Nosko & Steven Tadelis, 2015. "The Limits of Reputation in Platform Markets: An Empirical Analysis and Field Experiment," NBER Working Papers 20830, National Bureau of Economic Research, Inc.
    8. Moshe A. Barach & John Horton, 2017. "How Do Employers Use Compensation History?: Evidence from a Field Experiment," CESifo Working Paper Series 6559, CESifo.
    9. Moshe A. Barach & Aseem Kaul & Ming D. Leung & Sibo Lu, 2019. "Strategic Redundancy in the Use of Big Data: Evidence from a Two-Sided Labor Market," Strategy Science, INFORMS, vol. 4(4), pages 298-322, December.
    10. Michael Spence, 1977. "Consumer Misperceptions, Product Failure and Producer Liability," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 44(3), pages 561-572.
    11. Coase, R H, 1979. "Payola in Radio and Television Broadcasting," Journal of Law and Economics, University of Chicago Press, vol. 22(2), pages 269-328, October.
    12. Jennifer L. Doleac & Luke C.D. Stein, 2013. "The Visible Hand: Race and Online Market Outcomes," Economic Journal, Royal Economic Society, vol. 123(11), pages 469-492, November.
    13. Basil Halperin & Benjamin Ho & John A List & Ian Muir, 2022. "Toward An Understanding of the Economics of Apologies: Evidence from a Large-Scale Natural Field Experiment," The Economic Journal, Royal Economic Society, vol. 132(641), pages 273-298.
    14. Bruce McWilliams, 2012. "Money-Back Guarantees: Helping the Low-Quality Retailer," Management Science, INFORMS, vol. 58(8), pages 1521-1524, August.
    15. Feng Zhu & Qihong Liu, 2018. "Competing with complementors: An empirical look at Amazon.com," Strategic Management Journal, Wiley Blackwell, vol. 39(10), pages 2618-2642, October.
    16. Andrei Hagiu & Julian Wright, 2015. "Controlling Versus Enabling - Online Appendix," Harvard Business School Working Papers 16-004, Harvard Business School, revised Jul 2016.
    17. Autor, David, 2008. "The Economics of Labor Market Intermediation: An Analytic Framework," IZA Discussion Papers 3705, Institute of Labor Economics (IZA).
    18. Eli M. Snir & Lorin M. Hitt, 2003. "Costly Bidding in Online Markets for IT Services," Management Science, INFORMS, vol. 49(11), pages 1504-1520, November.
    19. Hema Yoganarasimhan, 2013. "The Value of Reputation in an Online Freelance Marketplace," Marketing Science, INFORMS, vol. 32(6), pages 860-891, November.
    20. Geoffrey Heal, 1977. "Guarantees and Risk-Sharing," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 44(3), pages 549-560.
    21. Andrei Hagiu & Julian Wright, 2015. "Controlling Versus Enabling," Harvard Business School Working Papers 16-002, Harvard Business School, revised Jul 2016.
    22. Agrawal, Ajay & Lacetera, Nicola & Lyons, Elizabeth, 2016. "Does standardized information in online markets disproportionately benefit job applicants from less developed countries?," Journal of International Economics, Elsevier, vol. 103(C), pages 1-12.
    23. Nancy A. Lutz, 1989. "Warranties as Signals under Consumer Moral Hazard," RAND Journal of Economics, The RAND Corporation, vol. 20(2), pages 239-255, Summer.
    24. Amanda Pallais, 2014. "Inefficient Hiring in Entry-Level Labor Markets," American Economic Review, American Economic Association, vol. 104(11), pages 3565-3599, November.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    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.
    2. Wright, Nataliya Langburd & Nagle, Frank & Greenstein, Shane, 2023. "Open source software and global entrepreneurship," Research Policy, Elsevier, vol. 52(9).
    3. Xiang Hui & Meng Liu, 2022. "Quality Certificates Alleviate Consumer Aversion to Sponsored Search Advertising," CESifo Working Paper Series 9886, CESifo.
    4. Lukas Jurgensmeier & Bernd Skiera, 2023. "Measuring Self-Preferencing on Digital Platforms," Papers 2303.14947, arXiv.org, revised Feb 2024.
    5. Belleflamme, Paul & Johnen, Johannes, 2023. "Non-Price Strategies of Marketplaces: A Survey," LIDAM Discussion Papers CORE 2023015, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    6. Kazakova, E. & Sandomirskaia, M. & Suvorov, A. & Khazhgerieva, A. & Shavshin, R., 2023. "Platforms, online labor markets, and crowdsourcing. Part 1. Traditional online labor market," Journal of the New Economic Association, New Economic Association, vol. 60(3), pages 120-148.
    7. Yao, Qiongrui (Missy) & Baker, LaKami T. & Lohrke, Franz T., 2022. "Building and sustaining trust in remote work by platform-dependent entrepreneurs on digital labor platforms: Toward an integrative framework," Journal of Business Research, Elsevier, vol. 149(C), pages 327-339.
    8. Dandan Qiao & Huaxia Rui & Qian Xiong, 2023. "AI and Jobs: Has the Inflection Point Arrived? Evidence from an Online Labor Platform," Papers 2312.04180, arXiv.org, revised Aug 2024.
    9. Yan, Xiaoyu & Liu, Weihua & Tang, Ou & Hou, Jiahe, 2024. "When will an overconfident entrant in the two-sided market do more good than harm?," International Journal of Production Economics, Elsevier, vol. 267(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Moshe A. Barach & Joseph M. Golden & John J. Horton, 2019. "Steering in Online Markets: The Role of Platform Incentives and Credibility," NBER Working Papers 25917, National Bureau of Economic Research, Inc.
    2. John J. Horton, 2019. "Buyer Uncertainty About Seller Capacity: Causes, Consequences, and a Partial Solution," Management Science, INFORMS, vol. 65(8), pages 3518-3540, August.
    3. John Horton, 2018. "Buyer Uncertainty about Seller Capacity: Causes, Consequences, and a Partial Solution," CESifo Working Paper Series 6985, CESifo.
    4. Braesemann, Fabian & Stephany, Fabian & Teutloff, Ole & Kässi, Otto & Graham, Mark & Lehdonvirta, Vili, 2021. "The polarisation of remote work," SocArXiv q8a96, Center for Open Science.
    5. Maier, Michael F. & Viete, Steffen & Ody, Margard, 2017. "Plattformbasierte Erwerbsarbeit: Stand der empirischen Forschung," IZA Research Reports 81, Institute of Labor Economics (IZA).
    6. Jason Chan & Jing Wang, 2018. "Hiring Preferences in Online Labor Markets: Evidence of a Female Hiring Bias," Management Science, INFORMS, vol. 64(7), pages 2973-2994, July.
    7. Cristiano Codagnone & Fabienne Abadie & Federico Biagi, 2016. "The Future of Work in the ‘Sharing Economy’. Market Efficiency and Equitable Opportunities or Unfair Precarisation?," JRC Research Reports JRC101280, Joint Research Centre.
    8. Alena Podaneva & Pierre Picard, 2023. "Facility Management Services in UK Hospitals: in-house or outsourcing," DEM Discussion Paper Series 23-15, Department of Economics at the University of Luxembourg.
    9. Philip H. Dybvig & Nancy A. Lutz, 1993. "Warranties, Durability, and Maintenance: Two-sided Moral Hazard in a Continuous-Time Model," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 60(3), pages 575-597.
    10. Kässi, Otto & Lehdonvirta, Vili, 2018. "Do Digital Skill Certificates Help New Workers Enter the Market? Evidence from an Online Labour Platform," SocArXiv 7tybd, Center for Open Science.
    11. Alan Benson & Aaron Sojourner & Akhmed Umyarov, 2020. "Can Reputation Discipline the Gig Economy? Experimental Evidence from an Online Labor Market," Management Science, INFORMS, vol. 66(5), pages 1802-1825, May.
    12. Kazakova, E. & Sandomirskaia, M. & Suvorov, A. & Khazhgerieva, A. & Shavshin, R., 2023. "Platforms, online labor markets, and crowdsourcing. Part 1. Traditional online labor market," Journal of the New Economic Association, New Economic Association, vol. 60(3), pages 120-148.
    13. John Horton, 2017. "Price Floors and Employer Preferences: Evidence from a Minimum Wage Experiment," CESifo Working Paper Series 6548, CESifo.
    14. Cao, Zixia, 2022. "Brand equity, warranty costs, and firm value," International Journal of Research in Marketing, Elsevier, vol. 39(4), pages 1166-1185.
    15. Hinloopen, Jeroen & Zhou, Liting, 2019. "Insuring product markets," Economics Letters, Elsevier, vol. 179(C), pages 5-8.
    16. Evangelos Mourelatos & Jaakko Simonen & Simo Hosio & Daniil Likhobaba & Dmitry Ustalov, 2024. "How has the COVID-19 pandemic shaped behavior in crowdsourcing? The role of online labor market training," Journal of Business Economics, Springer, vol. 94(9), pages 1201-1244, November.
    17. Fabian Braesemann & Fabian Stephany & Ole Teutloff & Otto Kassi & Mark Graham & Vili Lehdonvirta, 2021. "The global polarisation of remote work," Papers 2108.13356, arXiv.org, revised Nov 2022.
    18. Laurel Wheeler & Robert Garlick & Eric Johnson & Patrick Shaw & Marissa Gargano, 2022. "LinkedIn(to) Job Opportunities: Experimental Evidence from Job Readiness Training," American Economic Journal: Applied Economics, American Economic Association, vol. 14(2), pages 101-125, April.
    19. Claussen, Jörg & Kretschmer, Tobias & Khashabi, Pooyan & Seifried, Mareike, 2020. "Two to tango? Psychological contract breach in online labor markets," ZEW Discussion Papers 20-078, ZEW - Leibniz Centre for European Economic Research.
    20. Seifried, Mareike, 2021. "Transitions from offline to online labor markets: The relationship between freelancers' prior offline and online work experience," ZEW Discussion Papers 21-101, ZEW - Leibniz Centre for European Economic Research.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:inm:ormnsc:v:66:y:2020:i:9:p:4047-4070. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Asher (email available below). General contact details of provider: https://edirc.repec.org/data/inforea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.