Understanding Online Two-sided Market: An Empirical Perspective

Abstract

This dissertation provides a comprehensive investigation of online two-sided markets from empirical perspective. The four essays included propose research questions from four different angles and answer those questions by using four correspondingly matched empirical setups. In essay 1, we study the adoption of online two-sided market by investigating how two-sided sales promotion affects drivers’ willingness to use the TNC app and how the TNC develops its optimal promotion strategies accordingly. We find that the substantial value of early promotion not only encourages current usage but also fosters learning that sustains drivers’ use of the app afterward. The results also show that revealed tips from passengers signal low quality of service and that platform cashback to passengers has a positive effect on drivers by increasing drivers’ chances of being rewarded. In essay 2, we investigate the information asymmetry problem of online two-sided market by measuring the effect of platform endorsements and consumer-generated reputation on demand in the online service marketplace and the effect of a “conform or be cast out” policy that is applied by the platform to ensure that sellers have platform refund insurance on the platform-wide quality and competency. We find that individuals have relatively consistent sensitivity to consumer-generated reputation, but different perceptions of platform endorsements, some of which could have a negative effect on demand. Regarding the “conform or be cast out” policy, we find that, even though casting-out reduces the variety of sellers and, thus, decreases platform-wide demand and consumer welfare, the negative effect is offset by sellers’ having platform refund insurance. In essay 3, we study the social influence of online two-sided market by investigating how a review-in-review (RIR) affects rating behavior. We find measurable evidence that individuals rate, in part, to satisfy their expectation of gaining social capital. The average rater weights social capital gain at approximately 20%. In essay 4, we examined the role of the mega player in the online two-sided market by estimating the spillover effects of WeChat on the other top-50 most frequently used apps in China. We find that the spillover effects of WeChat are limited; in fact, only two other only two other apps, Tencent News and Taobao, receive positive spillover effects from WeChat.