6 - Platform Design

Summary

In this chapter, we take a closer look at how the strategies of a profit-maximizing two-sided platform affect user participation and usage in a buyer-seller context. First, in Section 6.1, we introduce competition between sellers on the platform and analyze how this affects platform pricing and design; we also assess the impacts of the platform’s decisions on product variety. Next, in Section 6.2, we examine two specific design decisions that affect cross-group network effects: First, we revisit the issue of product variety, which a platform can also manage through its design of rating, reviews, and recommender systems; second, we examine the extent to which an intermediary wants to increase price transparency on the platform. Finally, in Section 6.3, we turn to design decisions that a platform can use to govern the sellers’ pricing strategies; the question here is whether platforms can increase their profit by letting sellers choose from a richer set of pricing strategies – for instance, by providing sellers with buyers’ personal data so as to facilitate differential pricing.