The Impact of Platform Protection Insurance on Buyers and Sellers in the Sharing Economy: A Natural Experiment

Abstract

The sharing economy has radically reshaped marketing thought and practice. Prior research has yet to examine whether and how a platform-level buyer protection insurance (PPI) impacts the buyers and sellers in the sharing economy. We exploit a natural experiment of an unexpected system glitch during the launch of PPI and estimate difference-in-differences models with over 5.4 million data points from a food-sharing platform. Results suggest that PPI significantly increases buyer spending and seller revenues, affirming the benefits of this platform-level insurance in the sharing economy. We also uncover multifaceted buyer-side responses and seller-side responses that enable such benefits. PPI increases buyer spending on the platform by ways of boosting product orders and variety-seeking behavior. Further, it enhances seller revenues by increasing customer retention and acquisition. Our work contributes to the literature by (1) putting the spotlight on the topic of PPI, a platform governance policy that reduces consumer risks and improves the efficacy of sharing platforms, (2) accounting for how PPI alters buyer and seller behaviors on the platform, (3) addressing what types of buyers and sellers benefit more or less from PPI, and (4) proffering guidance for managers to improve platform reputation, marketplace efficiency, and consumer welfare in the context of the sharing economy.

Keywords: sharing economy, consumer protection insurance, platform regulation, peer-to-peer, customer retention and acquisition