Leonardo Madio (University of Padova) will present the paper “Design and Governance of Quality on a Digital Platform” on June 5th, 2024, at 3:00 PM, in room QA406.
Abstract:
This paper studies the incentives of a platform to curate quality of third- party products it hosts. There are two types of sellers. “Normal sellers” have heterogeneous intrinsic quality and can enhance their quality through effort. Bad sellers have zero quality and never exert effort. Quality is unobserved to consumers who rely on a rating system to form beliefs on product quality. We show that the platform may intentionally host bad sellers to induce more effort by normal sellers, even if it can identify and block bad sellers at zero cost. We also show that a social planner might also want to have some bad sellers on board. Moreover, tolerating bad sellers can also be a more effective tool to induce more effort than making the rating system more stringent.