Targeted Incentives, Broad Impacts: Evidence from an E-Commerce Platform

49 Pages Posted: 24 Aug 2022

See all articles by Xiang Hui

Xiang Hui

Washington University in St. Louis

Meng Liu

Washington University in St. Louis

Tat Chan

Washington University in St. Louis - John M. Olin Business School

Date Written: 2022

Abstract

Digital platforms sometimes offer incentives to a subset of sellers to nudge behavior, possibly affecting the behavior of all sellers in the equilibrium. 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 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 and equilibrium prices. This finding is consistent with our key insight that a targeted incentive may increase demand for non-targeted sellers when both platform certificates and the promoted behaviors are quality signals. Our results have managerial implications for digital platforms that use targeted incentives.

Keywords: targeted incentives, quality provision, signalling, demand expansion

Suggested Citation

Hui, Xiang and Liu, Meng and Chan, Tat, Targeted Incentives, Broad Impacts: Evidence from an E-Commerce Platform (2022). CESifo Working Paper No. 9894, Available at SSRN: https://ssrn.com/abstract=4196290 or http://dx.doi.org/10.2139/ssrn.4196290

Xiang Hui (Contact Author)

Washington University in St. Louis ( email )

Meng Liu

Washington University in St. Louis ( email )

Tat Chan

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

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