Two-sided platforms (also known as two-sided markets) such as online marketplaces and technology platforms enable and govern transactions between seller-side and buyer-side users. The large scale of user-generated businesses on these platforms fosters a wide diversity of products, which shapes the platform economy. Greater diversity provides buyers with a wider range of choices; meanwhile, it introduces more complexity to sellers' strategic considerations. The interactions between the two sides as well as within each side determine sellers' prices and sales, which contribute to the platform's revenue. Thus, understanding the impact of such diversity on interactions among all users on the platform is critical for managing profitability of the platform. In this paper, we study the effect of product diversity on the platform users' transaction decisions and, consequently, on users' surplus and the platform's profit. We further examine the effectiveness of a platform's control policy on product diversity.
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