Off-Platform Threats in On-Demand Services

38 Pages Posted: 17 Apr 2020

See all articles by Eryn Juan He

Eryn Juan He

National University of Singapore

Sergei Savin

University of Pennsylvania - Operations, Information and Decisions Department

Joel Goh

National University of Singapore

Chung-Piaw Teo

NUS Business School - Department of Decision Sciences

Date Written: March 8, 2020

Abstract

Problem Definition: Online platforms that provide on-demand services are often threatened by the phenomenon of leakage, where customer-provider pairs may decide to transact "off-platform" to avoid the platform’s commission. We study the key characteristics of a service vulnerable to leakage, and propose and evaluate a potential approach that a platform may employ to curb leakage.

Academic/Practical Relevance: In practice, much attention has been given to platform leakage, with platforms experimenting with multiple approaches to alleviate leakage and maintain their customer and provider bases. Yet, studies in the operations literature that systematically analyze the key factors behind platform leakage are lacking. Our work fills this gap and answers practical questions regarding sustainability of platform operations.

Methodology: We employ a game-theoretical model that captures service providers' and customers' decisions whether to conduct their business on or off the platform.

Results: We characterize the mechanism behind the platform leakage. Specifically, platform leakage occurs only if customers attach substantially different valuations to services delivered by different provider groups. Conversely, the propensity of leakage is suppressed when customers have a greater aversion to waiting or if they face greater counterparty risk from off-platform transactions. Finally, we propose and analyze a mechanism to curb leakage via provider training.

Managerial Implications: Our results provide guidance to existing platform managers and entrepreneurs who are considering "platforming" their services. Namely, based on a few key factors, managers can assess the severity of the threat of platform leakage for their specific business settings. In addition, our results suggest that efforts to reduce heterogeneity among providers can be an effective managerial lever to counteract the threat of leakage.

Keywords: On-demand services, platform leakage, sustainable operations, game theory, queueing theory

Suggested Citation

He, Eryn Juan and Savin, Sergei and Goh, Joel and Teo, Chung-Piaw, Off-Platform Threats in On-Demand Services (March 8, 2020). Available at SSRN: https://ssrn.com/abstract=3550646 or http://dx.doi.org/10.2139/ssrn.3550646

Eryn Juan He (Contact Author)

National University of Singapore ( email )

Institute of Operations Research and Analytics
Innovation 4.0, #04-01, 3 Research Link
117602
Singapore

Sergei Savin

University of Pennsylvania - Operations, Information and Decisions Department ( email )

3730 Walnut Street
570 Jon M. Huntsman Hall
Philadelphia, PA 19104-5340
United States

Joel Goh

National University of Singapore ( email )

NUS Business School
BIZ 1 Building, #02-01, 1 Business Link
117592
Singapore

Chung-Piaw Teo

NUS Business School - Department of Decision Sciences ( email )

15 Kent Ridge Drive
Mochtar Riady Building, BIZ 1 8-69
119245
Singapore

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