Conform or To Be Cast Out: Quantifying the Effect of Platform Endorsement and Consumer Generated Reputation in Online Service Marketplace Demand System

This paper measures the effectiveness of platform endorsement and consumergenerated reputation on sellers’ demand in online service marketplace. We apply BLPstyle model to understand consumers’ heterogeneous sensitivity to platform endorsement and consumer-generated reputation with endogeneity issue handled nicely. In addition, we investigate “conform or to be cast out” policy, which is applied by the platform to enforce sellers to improve one typical platform endorsement as platform refund insurance. Our results provide measurable evidence for that individuals exhibit consistent sensitivity to consumer-generated reputation, whereas perceive most of platform endorsement differently. With regard to the policy, it shows that though “cast out” reduce variety of sellers and thus decreases platform-wise demand and consumer welfare, the negative effect is offset by improvement of platform refund insurance by conforming sellers. Furthermore, we find that the policy shock would lead sellers’ further quality escalation, which indirectly benefits platform demand and consumer welfare.