The rise in e-commerce platforms on the digital marketplace has lead to many successful peer-to-peer businesses operating on an apparent trust basis between provider and user. However, as the platforms expand and become distanced from their initial incarnation, the process of maintaining transparency has in many cases been disrupted. In this article, we examine the crucial role of transparency and effective conflict management in sustaining the success of two-sided markets such as
In today's digital age, e-commerce platforms like Amazon, Uber and
However, with this convenience comes the challenge of maintaining transparency and resolving conflicts effectively. One of the primary difficulties arises from the sheer scale and diversity of users and transactions facilitated by these platforms. For
These factors have increasingly led to an asymmetry of information between platform operators and users, and hence, have exacerbated issues related to transparency and trust. Users may feel disempowered or wary of platform policies and decision-making processes, particularly if they perceive a lack of coherence and accountability in terms of information sharing.
Reducing transaction costs
Two-sided markets excel in minimizing transaction costs, offering users streamlined experiences and efficient interactions. Search costs decrease as consumers easily compare products and prices on a single platform, while clear processes govern interactions.
For example,
By leveraging economies of scale and network effects, e-commerce platforms such as
Additionally, rating systems and customer feedback are featured to provide valuable insights into the reliability and quality of the offer. As a result, two-sided markets, in theory, play a pivotal role in promoting efficient market exchanges, driving economic growth and expanding opportunities for participants across various sectors.
The strengths of network effects
The real strength of two-sided markets lies in network effects, driven by the number of users. As the user base expands, the platform becomes increasingly valuable for both buyers and sellers. Sellers gain visibility and access to a vast client base, amplifying their reach and potential sales opportunities.
This increased exposure also contributes to the overall vibrancy and diversity of offerings on the platform. Buyers enjoy a diverse array of options and services, ranging from unique products to specialized experiences, as the platform attracts more sellers and service providers.
Moreover, as the number of users grows, so does the volume of interactions and transactions taking place on the platform. This heightened activity makes for a dynamic ecosystem where supply meets demand with greater efficiency, leading to more favorable outcomes for both parties involved.
Furthermore, shared experiences among buyers create a sense of community and trust, enhancing the overall value proposition of the platform. Feedback and recommendations contribute to building a loyal user base and a semblance of reliability that further fuel the network effects.
The paradoxical market structure
Successful two-sided platforms often evolve into monopolies, creating highly competitive environments within. This paradoxical structure, featuring a monopoly at the level of external infrastructure but competitiveness internally, ensures efficiency by allowing users to find all the available options on the same marketplace, without the need to switch between platforms.
A perfectly competitive market is characterized by small-atomistic-agents (consumers and producers), absence of market power (ability to influence the equilibrium price) and perfect information. However, while two-sided platforms strive to emulate the competitive conditions of a perfectly competitive market, one key departure from this ideal exist.
Although two-sided platforms seem to provide users with a lot of information regarding available options and prices, not all that glitters is gold. Besides asymmetries and biases in algorithms or search rankings that slant visibility and favor certain sellers or products over others, information can become rather abstract, hard to verify, and hence, easy to manipulate. With growing
This lack of clarity distorts market outcomes, inhibiting the free flow of information characteristic of perfect competition.
Professionalization of sellers and transparency issues
Even though platforms like
For example, property agents have been known to invent an individual host's name to give the listing a more personal, homely touch, thereby disguising the fact that the guest-to-host experience has actually been disrupted. Since a platform like
The growing presence of professional agents and agencies also introduces complexities in conflict resolution processes, as their professional interests and motivations in many cases differ from those of individual hosts or guests. For example, requesting an extra duvet from an agency-run property is usually more complex than asking the individual host who usually lives nearby. Similarly, highlighting a problem or complaint becomes a more drawn out affair when dealing with an agency due to less personal availability, 9-5 opening hours and time-consuming procedures.
Negative reviews
Another example can be seen in the selective removal of negative reviews, particularly in service-oriented platforms like
The selective removal of negative reviews on
As a result, they advocate for mechanisms that allow hosts to contest or remove reviews that they deem inaccurate, misleading or in violation of platform guidelines. While
Some users have speculated that
Addressing these challenges requires a reevaluation of platform policies and practices to ensure equitable access to information and fair dispute resolution mechanisms for all participants, regardless of their professional status or level of involvement.
Fairness in pricing
In the realm of two-sided markets, pricing becomes a pivotal element influencing consumer decisions. The notion that higher prices signal higher quality is a common belief, creating a scenario where sellers, particularly those presenting themselves as professionals on platforms like
Fairness in pricing is a critical aspect of
From an economic point of view, it is reasonable to increase prices when demand is high; it is not reasonable to keep prices high because the platform is dominated by a few professionals that do not compete with each other.
To strike a balance,
Conflict resolution
In situations where conflicts arise, particularly in service-based transactions like short-term rentals, the lack of robust platform interventions can exacerbate tensions and undermine trust between users and the platform. Occasional users may feel disadvantaged or discouraged from pursuing resolution, especially if they perceive lack of support from the platform and its complicated, time-consuming processes. These dynamics ultimately erode confidence in the platform's ability to protect users' interests.
When intervention from the platform is required, guests' common concerns include lengthy wait times, lack of transparency, and most commonly, limited enforcement of policies. Users have raised concerns about
Another study reported Two themes reflect the sources of distrust:
Recently,
Towards a more equitable marketplace
The dual nature of two-sided markets, characterized by their reliance on network effects and market structure, presents both opportunities and challenges in ensuring the integrity and sustainability of these platforms. While network effects drive growth and engagement, they also raise questions about market dominance, competition and fair access to information among participants.
Moreover, the proliferation of professional sellers and agencies on platforms like
In confronting these challenges, two-sided e-commerce platforms must prioritize transparency, fairness and effective communication channels to develop trust and ensure the longevity of their relationships with users. By implementing clearer proactive dispute resolution strategies and equitable policies, these popular platforms can survive in a more resilient and fairer digital marketplace.
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