Peak-Load Pricing in Platform Markets

Abstract

We study the welfare and profit implications of variable pricing in a dining reservation platform where restaurants set time-varying discount rates (by day of the week and 30minute time slots within the day). Using data on reservations and a measure of walkin traffic, we estimate a model in which restaurants serve time-varying demand using fixed capacity. We find that peak-load pricing, rather than intertemporal price discrimination, is the primary driver of observed price variation. Therefore, variable pricing leads to substantial welfare gains through improving capacity utilization. Despite these benefits, variable pricing can reduce platform profits, weakening the platform's incentive to provide such technology. Moreover, profit-sharing contracts between the platform and restaurants, although eliminate double marginalization, can exacerbate this incentive misalignment, leading to inefficiently low provision of variable pricing and preventing welfare-improving pricing technologies from being implemented.

Keywords: Peak-Load Pricing, Price Discrimination, Platform Economy