Information Sharing on Retail Platforms

Abstract

Problem Definition: This paper studies the information-sharing strategy for a retail platform on which multiple competing sellers distribute their products.

Academic/Practical Relevance: Due to the rapid growth of retail platforms in recent years, information sharing has become an increasingly important issue because retail platforms can gather enormous consumer information that may not be visible to the sellers. Understanding how to share such information with those sellers will provide useful implications from both the theoretical and practical perspectives.

Methodology: We develop a game-theoretic model where multiple sellers compete on a retail platform by selling substitutable products and the platform charges a commission fee for each transaction. The platform owns superior demand information and can control the accuracy level when sharing the information with the sellers. There are two potential constraints on the platform's sharing strategy: privacy (the platform cannot share the information collected from one seller with other sellers) and fairness (the platform has to treat all sellers equally).

Results: We find that the platform always has incentives to share the information, and such sharing benefits both the platform and all sellers. When there is no fairness constraint, the optimal strategy for the platform is to select a subgroup of sellers and truthfully share information with them. Under the fairness constraint, the platform must share the same information with all sellers and thus has an incentive to reduce the accuracy of the shared information. Moreover, we identify a simple pricing mechanism that can achieve the optimal information-sharing outcome. Finally, we show that when the sellers differ in their market power, the platform would prefer to share information truthfully with those sellers who have a lower impact on others.

Managerial Implications: This research highlights the importance of understanding the impact of information sharing on a retail platform with competing sellers. It also provides a simple single-price mechanism to implement the optimal sharing strategy. These results could provide useful guidelines for platform managers to better design their information-sharing services.

Keywords: information sharing; retail platform; pricing mechanism; platform operations

JEL Classification: C70, D83