Recently, Professor Lv Gaoyan, a teacher of the Department of Management Science and Logistics of our school, and Professor Yi Xu, a collaborator of the University of Maryland, published a research paper titled "Quality Regulation on Two-Sided platforms: Exclusion, Subsidization, and First-Party Applications" in Management Science, a UTD journal of management.
Managing the quality of complementary applications is vital to the success of a two-sided platform. While prior research has focused solely on restricting platform access based on a quality threshold, we compare the quality regulation strategies. (1) the platform excludes access to low-quality complementors,(2) it provides a fixed amount of subsidy to
high-quality complementors, and (3)it develops its own high-quality applications in addition to those from third-party complementors. Our analyses reveal that the widely adopted exclusion strategy is a special case of the subsidization strategy, and it does not always benefit the platform. In contrast, both subsidization and firs-party applications strategies render the platform owner better off, with higher profits, higher average quality,and a larger consumer net-work, but only subsidization always improves social welfare. In addition, the trade-off between subsidization and first-party applications strategies depends on the development cost of fist-party applications and the fraction of high-quality complementors,but the relationship is not monotonic. Our results demonstrate that the platform does not have to sacrifice application quantity for higher application quality.With the right choices, it can profitably improve both measures simultaneously.This research provides concrete guidelines to help platform managers make decisions regulating the quality of complementary applications.
Details: Peng Huang,Gaoyan Lyu,Yi Xu(2021) Quality Regulation on Two-Sided Platforms: Exclusion, Subsidization, and First-Party Applications. Management Science 0(0).
https://doi.org/10.1287/mnsc.2021.4075
Link：https://pubsonline.informs.org/doi/10.1287/mnsc.2021.4075
