The Impact of Platform Protection Insurance on Buyers and Sellers in the Sharing Economy: A Natural Experiment

ABSTRACT

The sharing economy has radically reshaped marketing thought and practice, and research has yet to examine whether and how platform-level buyer protection insurance (PPI) affects buyers and sellers in this economy. The authors exploit a natural experiment involving an unexpected system glitch during a PPI launch and estimate difference-in-differences models using over 5.4 million data points from a food sharing platform. Results suggest that PPI significantly increases buyer spending and seller revenue, affirming the benefits of this platform-level insurance in the sharing economy. The authors also uncover multifaceted buyer-side and seller-side responses that enable such benefits. PPI increases buyer spending by boosting product orders and variety-seeking behavior. Furthermore, it enhances seller revenue by increasing customer retention and acquisition. This work contributes to the literature by (1) putting a spotlight on the topic of PPI, a platform governance policy that reduces consumer risks and improves the efficacy of sharing platforms;(2) accounting for how PPI alters buyer and seller behaviors on a platform;(3) addressing what types of buyers and sellers benefit more or less from PPI;and (4) offering guidance for managers to improve platform reputation, marketplace efficiency, and consumer welfare in the context of the sharing economy.