Peer-to-Peer Markets with Bilateral Ratings

47 Pages Posted: 13 Sep 2017 Last revised: 25 Sep 2017

See all articles by T. Tony Ke

T. Tony Ke

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Baojun Jiang

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

Monic Sun

Questrom School of Business, Boston University

Date Written: September 10, 2017

Abstract

We consider a platform that matches service providers with potential customers. Ratings of a service provider reveal the quality of his service while ratings of a consumer reveal the cost to serve her. Under a competitive search framework, we study how bilateral ratings influence market competition and segmentation. Two types of equilibria exist under bilateral ratings. In the first type, low-cost consumers only apply to high-quality service providers, who post a higher price, have longer queues and are less likely to accept an application than low-quality providers. High-cost consumers apply to all service providers and have a lower acceptance rate. In the second type of equilibria, both high- and low-quality service providers serve all consumers. Across all equilibria, equilibrium prices may decrease as the fraction of high-quality providers increases, as consumers become more costly to serve, and as the platform's commission rate increases. Compared with a platform with unilateral ratings where only service providers are rated, a platform with bilateral ratings may soften service providers' competition, leading to higher equilibrium prices. Lastly, we find that in the case of incomplete market coverage, high-quality service providers may charge lower prices than low-quality providers in equilibrium, because by charging a lower price, a high-quality service provider attracts more consumer applications, which enables him to cherrypick a low-cost consumer, while a low-quality service provider faces with consumers with higher serving costs and thus charge a higher price to make up the serving cost.

Keywords: Platform, Peer-to-Peer, Competitive Search, Matching, Reviews, Information Disclosure, Segmentation

Suggested Citation

Ke, Tony and Jiang, Baojun and Sun, Monic, Peer-to-Peer Markets with Bilateral Ratings (September 10, 2017). MIT Sloan Research Paper No. 5236-17; 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)

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
E62-416
Cambridge, MA 02142
United States

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/

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

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
390
Abstract Views
1,613
rank
79,005
PlumX Metrics