Quantity vs. quality and exclusion by two-sided platforms

de Andrei Hagiu

This paper provides a simple model of two-sided platforms, in which one side (W) values not just the quantity (i.e. number) of users on the other side (M), but also their average quality in some dimension. In this context, platforms might find it profitable to exclude low-quality users on side M, even though some would be willing to pay the platform access prices. Platforms are more likely to engage in exclusion of low-quality M users when W users place more value on the average quality and less value on the total quantity on side M. Exclusion incentives also depend on the proportion of high-quality users in the overall M population and on their cost advantage in joining the platform, relative to low-quality M users. The net effect of these two factors is ambiguous: it generally depends on whether they have a stronger impact on the gains from exclusion (higher average quality) or on its costs (lower quantity).