Price Manipulation in Peer-to-Peer Markets and the Sharing Economy

Vladimir Pavlov and Ron Berman

No 19-10, Working Papers from NET Institute

Abstract: Should a peer-to-peer platform set prices for the products on the platform, or should it let sellers set their own prices while providing price recommendations? Centralized prices allow a platform to use demand information it observes, while price recommendations allow for competition in which sellers set prices based on their private information. On sharing economy platforms, for example, we observe a myriad of such pricing regimes. We investigate the implications of each pricing regime for the profits of platforms, buyers and sellers. When a platform recommends prices, it effectively plays the role of a sender in a multi-receiver cheap-talk game. platforms are not always better off by centralizing pricing. When the variance of aggregate demand is large, price recommendations can be sustained in equilibrium and are often more profitable for the platform. Otherwise, a price recommendation is not credible. High (low) quality sellers have a stronger (weaker) preference for centralized pricing than the platform. Buyers, in contrast, receive lower surplus when the platform provides price recommendations, and prefer centralized pricing or competition without price recommendations. The results provide tools for platform designers and policy makers to assess the impact of different pricing regimes in markets with platforms. Although price recommendations might seem to encourage lower prices among sellers through increased competition, this is not always the case.

Keywords: two-sided markets; peer-to-peer platforms; sharing economy; price recommendations; cheap talk (search for similar items in EconPapers)
JEL-codes: D21 D47 L13 L16 L22 M31 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2019-09
New Economics Papers: this item is included in nep-com, nep-gth, nep-pay and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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