Cheap Talk on Freelance Platforms

T. Tony Ke () and Yuting Zhu ()
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T. Tony Ke: Chinese University of Hong Kong, Shatin, New Territories, Hong Kong
Yuting Zhu: Sloan School of Management, Massachusetts Institute of Technology, Cambridge, Massachusetts 02139

Management Science, 2021, vol. 67, issue 9, 5901-5920

Abstract: We consider a large decentralized freelance platform where buyers with private information about their quality preferences are matched with freelancers that differ in quality. When posting their job requests, buyers can report their quality preferences via cheap talk, which influences freelancers’ application and pricing strategies. By exaggerating one’s quality preference, a buyer attracts not only more applications from freelancers, but also those with higher quality, at the cost of a higher expected price. We find that it is always an equilibrium for the buyers to report their quality preferences truthfully when they cannot renegotiate with freelancers on their asking prices after getting matched. On the other hand, when postmatch renegotiation is allowed and buyers have relatively high bargaining power, low-type buyers may strategically exaggerate their quality preferences, and subsequently after getting matched, costly signal their true type and bargain for lower prices. From a platform design perspective, our analysis implies that the option of renegotiation, designed to facilitate postmatch information transmission, may backfire by giving rise to buyers’ prematch opportunistic behaviors of information distortion.

Keywords: freelance; cheap talk; platform design; bargaining; signaling; competing auctions (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (5)

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