Cheap Talk on Freelance Platforms

45 Pages Posted: 15 Apr 2019 Last revised: 20 Jul 2020

See all articles by T. Tony Ke

T. Tony Ke

The Chinese University of Hong Kong (CUHK)

Yuting Zhu

Massachusetts Institute of Technology (MIT)

Date Written: July 10, 2019

Abstract

We consider a large decentralized freelance platform where buyers with private information about their quality preferences are matched with freelancers that differ in quality. When posting their job requests, buyers can report their quality preferences via cheap talk, which influences freelancers' application and pricing strategies. By exaggerating one's quality preference, a buyer attracts not only more applications from freelancers, but also those with higher quality, at the cost of a higher expected price. We find that it is always an equilibrium for the buyers to report their quality preferences truthfully when they cannot renegotiate with freelancers on their asking prices after getting matched. On the other hand, when post-match renegotiation is allowed and buyers have relatively high bargaining power, low-type buyers may strategically exaggerate their quality preferences, and subsequently after getting matched, costly signal their true type and bargain for lower prices. From a platform design perspective, our analysis implies that the option of renegotiation, designed to facilitate post-match information transmission, may backfire by giving rise to buyers' pre-match opportunistic behaviors of information distortion.

Keywords: freelance, cheap talk, platform design, bargaining, signaling, competing auctions

Suggested Citation

Ke, Tony and Zhu, Yuting, Cheap Talk on Freelance Platforms (July 10, 2019). Available at SSRN: https://ssrn.com/abstract=3371935 or http://dx.doi.org/10.2139/ssrn.3371935

Tony Ke (Contact Author)

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

Shatin, N.T.
Hong Kong
Hong Kong

Yuting Zhu

Massachusetts Institute of Technology (MIT) ( email )

77 Massachusetts Avenue
50 Memorial Drive
Cambridge, MA 02139-4307
United States

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