On the Participation, Competition and Welfare at Customer-Intensive Discretionary Service Platforms

Abstract

Problem definition: We investigate the participation, competition, and welfare at platforms that focus on customer-intensive discretionary services, such as healthcare, legal, and business consulting. Academic/practical relevance: Such platforms have recently emerged in practice to provide a venue for independent professionals and service seekers to match online. Methodology: We develop a strategic queueing model, where the platform sets the commission rate, upon which service providers decide participation, service quality, and price, and consumers make service acquisition. Results: First, our study reveals that with heterogeneous consumers, the participating service providers may engage in both price and service competitions if the number of them is either small or large. They compete for attractive consumers in the former and for market share in the latter. In these regions, more service providers joining the platform can result in a lower service price and a higher service quality. Whereas, if the number of participating service providers is intermediate, only service competition arises, so that a higher service quality is associated with a higher service price. Second, we find that in our main model, the platform may set the commission rate sufficiently high to limit the number of participating service providers, so as to prevent intense price competition. In contrast, if the platform also controls the service price, it may set a higher service price and a lower commission rate, which boosts the participation of service providers and improves their service quality. As a result, platform price intervention may not only benefit the platform and the service providers, but also the consumers. Managerial implications: These insights not only complement prior literature, but are also useful for understanding and the design of such service platforms in practice.