Product Line Design and Dispatch Strategy on Home Service Platforms

What the paper says

In recent years, home service platforms have experienced substantial growth. These platforms typically employ commission-based contracts to incentivize suppliers to offer a variety of services to consumers. To maximize profits, platforms must strategically optimize their dispatch strategies, contract design, and product quality decisions. We develop a model to analyze these decisions in an environment in which suppliers differ in service efficiency and consumers vary in their willingness to pay for quality. Consumers with higher (lower) willingness to pay for quality are classified into high (low) segments. When the low segment becomes particularly influential—because of its large population share and relatively high willingness to pay—the platform may find it optimal to induce high-efficiency suppliers to provide low-quality products. This tendency is further amplified when the matching probability for low-quality products is high. Conversely, when the heterogeneity between consumer segments is sufficiently small, the platform prefers to induce high-efficiency suppliers to provide high-quality products, resulting in upward quality distortion for the high segment. In this case, the quality gap between the two offerings increases with the low segment’s willingness to pay for quality. Funding: H. Xiong acknowledges the financial support of the National Natural Science Foundation of China [Grants 72371107 and 71971091]. Y.-J. Chen acknowledges the financial support of the Hong Kong Research Grants Council [GRF 16212821 and GRF 16204521] and Crown Worldwide Professorship. L. Hsiao acknowledges the financial support of the National Science and Technology Council [Grant MOST 110-2410-H-005-016-MY3]. Supplemental Material: The online appendix is available at https://doi.org/10.1287/serv.2024.0151 .