On the Disclosure of Promotion Value in Platforms with Learning Sellers
58 Pages Posted: 28 Oct 2019 Last revised: 6 Apr 2020
Date Written: October 12, 2019
We consider a platform facilitating trade between sellers and buyers with the objective of maximizing consumer surplus. Even though in many such marketplaces prices are set by revenue-maximizing sellers, platforms can influence prices through (i) price-dependent promotion policies that can increase demand for a product by featuring it in a prominent position on the webpage and (ii) the information revealed to sellers about the value of being promoted. Identifying effective joint information design and promotion policies is a challenging dynamic problem as sellers can sequentially learn the promotion value from sales observations and update prices accordingly. We introduce the notion of confounding promotion policies, which are designed to prevent a Bayesian seller from learning the promotion value (at the expense of the short-run loss of diverting consumers from the best product offering). Leveraging these policies, we characterize the maximum long-run average consumer surplus that is achievable through joint information design and promotion policies when the seller sets prices myopically. We then establish a Bayesian Nash equilibrium by showing that the seller's best response to the platform's optimal policy is to price myopically at every history. Moreover, the equilibrium we identify is platform-optimal within the class of horizon-maximin equilibria, in which strategies are not predicated on precise knowledge of the horizon length, and are designed to maximize payoff over the worst-case horizon. Our analysis allows one to identify practical long-run average optimal platform policies in a broad range of demand models.
Keywords: Information design, Bayesian learning, revenue management, pricing, platforms, online marketplaces
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