Which is More Effective for Platform Performance: Punishments or Incentives?

Abstract

The success of online third-party business-to-business (B2B) platforms relies heavily on simultaneous governance of both sellers and buyers. This study examined and compared the effects of punishments and incentives on seller’s opportunism toward platforms, buyers’ trust in platforms, and platform performance using data from B2B platforms in China. The results show that punishments (both severity and speed) and incentives toward sellers are negatively related to sellers’ opportunism toward platform. The effect of punishment severity is greater than that of punishment speed or incentives on curbing seller opportunism, and the effect of punishment speed is not significantly different from that of incentives. The findings also reveal that both punishment severity and speed toward sellers are positively related to buyers’ trust in platform, although their effects are not significantly different from each other. Additionally, incentives toward buyers do not significantly affect buyers’ trust in platform, and both punishment severity and speed have a greater effect than buyer incentives on building buyer trust. These findings not only make novel theoretical contributions to the B2B platform and governance literature by exploring platforms’ triadic governance issue but also provide valuable practical suggestions for platform managers.