Non-governmental organizations in Bangladesh: Platforms in a two-sided market

Research has shown that non-governmental organizations (NGOs) can substitute for the local provision of goods in developing economies. One explanation for this substitution is that as platforms in a two-sided market, NGOs allocate some of the costs of aid provision to donors, allowing NGOs to provide aid at a price below the competitive market price. Thus, local one-sided firms are not able to compete with the two-sided NGOs. In order for NGOs to behave as platforms in a two-sided market, the decision of donors to donate must depend on the number of aid recipients. Meanwhile the decision of aid recipients to participate in a platform must depend on the price of the services determined by the total donations from donors. Based on a three-stage least squares model utilizing data from NGOs in Bangladesh, the results suggest that donors do make choices based on the number of aid recipients and that NGOs reduce their prices from an increase in donations. However, the impact of decreasing the price on the number of aid recipients is insignificant. This discrepancy in the two-sided model can be explained by small changes in the price of the services as a result of increasing donations such that aid recipients are not able to identify an increase in their benefit from an increase in donations. As two-sided markets tend toward unique market behavior, structuring NGOs as platforms in a two-sided market not only offers direction for future research but also direction for policy aimed at limiting the negative externalities of aid provision.