The Limits of Centralized Pricing in Online Marketplaces and the Value of User Control

Apostolos Filippas (), Srikanth Jagabathula () and Arun Sundararajan ()
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Apostolos Filippas: Gabelli School of Business, Fordham University, New York, New York 10023
Srikanth Jagabathula: Stern School of Business, New York University, New York, New York 10012
Arun Sundararajan: Stern School of Business, New York University, New York, New York 10012

Management Science, 2023, vol. 69, issue 12, 7202-7216

Abstract: We report experimental and quasi-experimental evidence from a “sharing economy” marketplace that transitioned from decentralized to centralized pricing. Centralized pricing increased the utilization of providers’ assets, resulting in higher revenues but also higher transaction costs. Providers who were barred from accessing the price system made nonprice adjustments, including reducing the availability of their assets, canceling booked transactions, and exiting the market. Providers who retained partial pricing control reacted substantially less but experienced similar revenue increases. We highlight the challenges of implementing centralized pricing and assessing its welfare effects. We show that partial control can mitigate these challenges, allowing providers to express their private and heterogeneous preferences while maintaining the benefits of centralization.

Keywords: online marketplaces; pricing; sharing economy (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:69:y:2023:i:12:p:7202-7216

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