Peer-to-Peer Markets with Bilateral Ratings

44 Pages Posted: 13 Sep 2017 Last revised: 18 Jan 2024

See all articles by T. Tony Ke

T. Tony Ke

The Chinese University of Hong Kong (CUHK)

Monic Sun

Questrom School of Business, Boston University

Baojun Jiang

Washington University in Saint Louis - John M. Olin Business School

Date Written: September 10, 2017

Abstract

Peer-to-peer (P2P) markets have become a critical aspect of the modern economy. We consider a P2P market where a time-sensitive service is provided through a platform that matches providers of varying qualities to customers of varying costs. The P2P platform features bilateral ratings, which distinguishes itself from a traditional market: ratings of a provider reveal his service quality and ratings of a customer reveal her service cost. The existence of a cost measure in the P2P market leads to novel pricing considerations: a provider can attract low-cost customers by charging a low price, leading to an “endogenous composition effect”. As a result, equilibrium prices may decrease as customers become more costly to serve or as the platform's commission rate gets higher. Under certain conditions, high-quality providers may even charge a lower equilibrium price than low-quality providers in order to cherrypick low-cost customers. Exploratory analysis reveals that compared with unilateral ratings, bilateral ratings may soften provider competition and raise equilibrium prices as the providers target customers in different cost segments.

Keywords: platform design, information disclosure, customer reviews, decentralized matching, price competition

Suggested Citation

Ke, Tony and Sun, Monic and Jiang, Baojun, Peer-to-Peer Markets with Bilateral Ratings (September 10, 2017). NET Institute Working Paper No. 17-01, Available at SSRN: https://ssrn.com/abstract=3034915 or http://dx.doi.org/10.2139/ssrn.3034915

Tony Ke (Contact Author)

The Chinese University of Hong Kong (CUHK) ( email )

Shatin, N.T.
Hong Kong
Hong Kong

Monic Sun

Questrom School of Business, Boston University ( email )

595 Commonwealth Avenue
Boston, MA 02215
United States
(617) 353 9640 (Phone)

HOME PAGE: http://people.bu.edu/monic

Baojun Jiang

Washington University in Saint Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1156
St. Louis, MO 63130-4899
United States
3149353315 (Phone)

HOME PAGE: http://apps.olin.wustl.edu/faculty/Jiang/

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