UC Berkeley

Consider trade conducted via a platform, such as an online app store or a farmers’ market. The quality sellers choose for their products affects the surplus trade generates. Because the platform’s profit depends on that surplus, the platform can have an incentive to regulate quality. This is true even if quality is observable at time of purchase or if sellers can develop reputations concerning quality. It is also true if the platform charges sellers only; that is, even if the platform has no direct interest in buyers’ well-being.