Targeted Incentives, Broad Impacts: Evidence from an E-commerce Platform
34 Pages Posted: 27 Nov 2020
Date Written: October 11, 2020
Digital platforms sometimes offer incentives to a subset of sellers to nudge behaviors, but how do these targeted incentives affect all sellers? In this paper, we study a policy change on a large e-commerce platform that offers financial incentives only to platform-certified sellers when they provide fast handling and generous return policies on their listings. We find that both the targeted and non-targeted sellers become more likely to adopt the promoted behavior after the policy change. Exploiting a large number of markets on the platform, we find that in markets with a larger proportion of the targeted population---hence more affected by the policy change---non-targeted sellers are more likely to adopt the promoted behavior and experience a larger increase in sales with little price changes. This finding is consistent with our key insight that a targeted incentive may increase demand for non-targeted sellers if both the targeted type and the promoted behavior are observed and valued by consumers. Our results have managerial implications for digital platforms that use targeted incentives.
Keywords: targeted incentives, quality provision, signaling, demand expansion
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