Paper #1868

Title:

Platform liability with reputational sanctions

Authors:

Alessandro De Chiara, Juan José Ganuza, Fernando Gómez, Ester Manna and Adrián Segura

Date:

September 2023

Abstract:

This paper presents a framework where sellers, an online platform with monopoly power, and consumers transact. We aim to study the interaction between the imposition of liability on the platform, the reputational sanctions exerted by consumers, and the internal measures adopted by the platform to keep in check the sellers, whenever a product generates losses to consumers. We show that introducing direct legal liability of the platform may have both positive and negative effects for safety investments. Additionally, when sellers are heterogeneous (with respect to their sensitivity to the sanctions from consumers or from the platform), legal liability on the platform will have an impact on the selection of participating sellers, although the sign and size of the effect largely depend on paremeter values.

Keywords:

platform liability, third-party sellers, reputation

JEL codes:

K13, L15, L51

Area of Research:

Business Economics and Industrial Organization

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