Economic Theory - Yusuke Zennyo (Monash University)

Title: Should Platforms be Held Liable for Defective Third-Party Goods?

Abstract: This paper presents an examination of issues related to liability for harm to consumers caused by goods sold by third-party sellers on e-commerce platforms. A model of platform design is presented in which a platform chooses its liability design, specifying the percentages of consumer harm that should be
compensated respectively by the defective good seller and the platform. The model shows that the platform assumes no liability. Full liability is imposed on sellers, who enhance their defect-reducing investments. Regulations requiring minimum standards of platform liability improve consumer surplus under conditions of moderate seller competition and weak platform market power.