Quality Investment by Platforms

Abstract

In this paper I study incentives to invest in platform quality by organizations that operate either in a two-sided mode or in a one-sided mode, both in monopoly and duopoly market environments. In the two-sided mode, a platform enables direct interactions between consumers and sellers, that is, sellers offer their products directly to consumers. In the one-sided mode, a multi-product firm (MPF) produces and sells the varieties itself. The main findings are that 1) within each market environment a MPF invests more in quality than a two-sided platform, but less than a social planner, and 2) within each operation mode a platform invests more in quality in the duopoly environment compared to its monopoly counterpart.