Survival Scale: Marketplace Lending and Asymmetric Network Effects

64 Pages Posted: 4 Oct 2019 Last revised: 31 Oct 2019

See all articles by Lin William Cong

Lin William Cong

Cornell University

Qi Miao

The Nielsen Company

Ke Tang

Institute of Economics, School of Social Sciences, Tsinghua University

Danxia Xie

Tsinghua University - Institute of Economics

Date Written: October 2019

Abstract

We utilize a large panel data of peer-to-peer (P2P) lending platforms in China to examine the determinants of platform dynamics in an emerging industry characterized by entries, exits, and network externalities. We find that cross-side network effects (CNEs) captured by standard elasticity measures alter platforms’ scale, which in turn affect future platform performances through customer matching and risk diversification. CNEs are persistent and lenders’ CNEs are asymmetrically larger during platform growth than during platform declines. Borrowers’ CNEs are symmetric and indicate borrowers’ greater stickiness. Lenders’ CNEs also dominate borrowers’ in foretelling failures and, together with scale, strongly predict platforms’ long-term likelihood of survival since inception. These asymmetric network effects reflect distinguishing features of financial platforms, inherent differences between lenders and borrowers, and contracting or agency frictions. Overall, our empirical findings and their novel economic channels inform practitioners, investors, and regulators, while providing insights about industry-wide dynamics of multi-sided platforms.

Keywords: FinTech; Peer-to-peer Lending; Platforms; Two-sided Markets

JEL Classification: G19; G23; L13; L81

Suggested Citation

Cong, Lin and Miao, Qi and Tang, Ke and Xie, Danxia, Survival Scale: Marketplace Lending and Asymmetric Network Effects (October 2019). Available at SSRN: https://ssrn.com/abstract=3461893 or http://dx.doi.org/10.2139/ssrn.3461893

Lin Cong (Contact Author)

Cornell University ( email )

Ithaca, NY 14853
United States

HOME PAGE: http://www.linwilliamcong.org

Qi Miao

The Nielsen Company ( email )

China

Ke Tang

Institute of Economics, School of Social Sciences, Tsinghua University ( email )

No.1 Tsinghua Garden
Beijing, 100084
China
13466777332 (Phone)

Danxia Xie

Tsinghua University - Institute of Economics ( email )

MingZhai Building
Beijing, 100084
China

HOME PAGE: http://danxiaxie.com

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