Price Manipulation in Peer-to-Peer Markets and the Sharing Economy

40 Pages Posted: 10 Nov 2019

See all articles by Vladimir Pavlov

Vladimir Pavlov

The Wharton School of Business

Ron Berman

University of Pennsylvania, The Wharton School

Date Written: September 30, 2019

Abstract

Should a peer-to-peer platform set prices for the products on the platform, or should it let sellers set their own prices while providing price recommendations? Centralized prices allow a platform to use demand information it observes, while price recommendations allow for competition in which sellers set prices based on their private information. On sharing economy platforms, for example, we observe a myriad of such pricing regimes. We investigate the implications of each pricing regime for the profits of platforms, buyers and sellers. When a platform recommends prices, it effectively plays the role of a sender in a multi-receiver cheap-talk game. Platforms are not always better off by centralizing pricing. When the variance of aggregate demand is large, price recommendations can be sustained in equilibrium and are often more profitable for the platform. Otherwise, a price recommendation is not credible. High (low) quality sellers have a stronger (weaker) preference for centralized pricing than the platform. Buyers, in contrast, receive lower surplus when the platform provides price recommendations, and prefer centralized pricing or competition without price recommendations. The results provide tools for platform designers and policy makers to assess the impact of different pricing regimes in markets with platforms. Although price recommendations might seem to encourage lower prices among sellers through increased competition, this is not always the case.

Keywords: two-sided markets, peer-to-peer platforms, sharing economy, price recommendations, cheap talk

Suggested Citation

Pavlov, Vladimir and Berman, Ron, Price Manipulation in Peer-to-Peer Markets and the Sharing Economy (September 30, 2019). NET Institute Working Paper No. 19-10. Available at SSRN: https://ssrn.com/abstract=3468447 or http://dx.doi.org/10.2139/ssrn.3468447

Vladimir Pavlov

The Wharton School of Business ( email )

700 Jon M. Huntsman Hall
3730 Walnut Street
Philadelphia, PA
United States

Ron Berman (Contact Author)

University of Pennsylvania, The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104
United States

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