Lowering the Garden Wall: Marketplace Leakage and Quality Curation

43 Pages Posted: 30 Oct 2024 Last revised: 15 Dec 2024

See all articles by Ben Casner

Ben Casner

Federal Trade Commission Bureau of Economics

Date Written: February 01, 2024

Abstract

What are the unintended effects of policies that reduce the cost of disintermediating from market platforms? I show that it may be profitable for a platform to reduce the intensity with which it screens sellers while simultaneously offering a robust refund policy to insure consumers against possible transactions with low-quality sellers. This reduces the incentive to disintermediate by shrinking consumer confidence in sellers who steer consumers to direct transactions, reducing consumers' willingness to pay for off-platform transactions. The refund policy encourages low-quality sellers to only offer direct transactions while maintaining consumer willingness to pay for products sold through the platform. Introducing a rival platform increases seller welfare and eliminates this unintended effect by deterring platforms from allowing low-quality sellers to join their marketplaces for fear of losing consumers to their rival.

JEL Classification: D40, L15, L43

Suggested Citation

Casner, Ben, Lowering the Garden Wall: Marketplace Leakage and Quality Curation (February 01, 2024). Available at SSRN: https://ssrn.com/abstract=4969728 or http://dx.doi.org/10.2139/ssrn.4969728

Ben Casner (Contact Author)

Federal Trade Commission Bureau of Economics ( email )

600 Pennsylvania Ave NW
Washington, DC 20580
United States

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