Journal
MANAGEMENT SCIENCE
Volume 68, Issue 6, Pages 4415-4434Publisher
INFORMS
DOI: 10.1287/mnsc.2021.4075
Keywords
quality regulation; two-sided market; platform ecosystem; first-party application; quality threshold
Funding
- National Natural Science Foundation of China [72101030]
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Managing the quality of complementary applications is crucial for the success of two-sided platforms. Three quality regulation strategies are compared in this study, showing that excluding low-quality complementors may not always benefit the platform, while subsidization and first-party applications strategies can lead to higher profits, quality, and consumer network.
Managing the quality of complementary applications is vital to the success of a two-sided platform. While prior research has focused solely on restricting platform access based on a quality threshold, we compare three quality regulation strategies: (1) the platform excludes access to low-quality complementors, (2) it provides a fixed amount of subsidy to high-quality complementors, and (3) it develops its own high-quality applications in addition to those from third-party complementors. Our analyses reveal that the widely adopted exclusion strategy is a special case of the subsidization strategy, and it does not always benefit the platform. In contrast, both subsidization and first-party applications strategies render the platform owner better off, with higher profits, higher average quality, and a larger consumer network, but only subsidization always improves social welfare. In addition, the trade-off between subsidization and first-party applications strategies depends on the development cost of first-party applications and the fraction of high-quality complementors, but the relationship is not monotonic. Our results demonstrate that the platform does not have to sacrifice application quantity for higher application quality. With the right choices, it can profitably improve both measures simultaneously. This research provides concrete guidelines to help platform managers make decisions about regulating the quality of complementary applications.
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