When Should a Sharing Platform Adopt the Bilateral Review System?

MIS Quarterly, Forthcoming

Posted: 7 Dec 2020 Last revised: 2 Dec 2023

See all articles by Xuanqi Chen

Xuanqi Chen

Xi'an Jiaotong University (XJTU) - School of Management

Gang Li

Xi'an Jiaotong University (XJTU) - School of Management

Shengli Li

Peking University

Quan Zheng

University of Science and Technology of China - School of Management

Date Written: November 2, 2020

Abstract

The sharing economy and platforms have gained popularity in recent years, raising concerns about the lack of information on the demand side: the cost of serving specific buyers is typically unknown to sellers. To mitigate this concern, some platforms, such as Airbnb, have adopted the bilateral review system (BRS), allowing buyers and sellers to rate each other. This differs from the traditional unilateral review system (URS), which allows only buyers to rate sellers. In this study, we examine how these two review systems impact the operation of a peer-to-peer (P2P) sharing platform, where sellers with different qualities are matched with buyers with different serving costs. Our analysis reveals that under URS, even with perfect seller information, high-quality sellers can still be driven out of the market, owing to unknown information about the buyer and the ``co-production'' nature of the serving cost. This differs from the adverse selection problem often observed in the used car market, where sellers of high-quality products withdraw due to generally unknown product quality. Additionally, we highlight the critical role of the expected buyer cost: When this cost is high, BRS can benefit the platform by alleviating the adverse selection problem; however, when this cost is low, BRS becomes detrimental to the platform. Our analysis also shows that BRS helps buyers but can hurt sellers. Moreover, BRS has the potential to generate a favorable outcome for all parties involved, resulting in a win-win-win situation benefiting the platform, buyers, and sellers. Our results not only shed light on review system design but also provide a plausible explanation for the widespread use of BRS by sharing platforms such as Airbnb, Fiverr, and Turo.

Keywords: sharing economy, bilateral review system, platform, information asymmetry, adverse selection

Suggested Citation

Chen, Xuanqi and Li, Gang and Li, Shengli and Zheng, Quan, When Should a Sharing Platform Adopt the Bilateral Review System? (November 2, 2020). MIS Quarterly, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3724924 or http://dx.doi.org/10.2139/ssrn.3724924

Xuanqi Chen

Xi'an Jiaotong University (XJTU) - School of Management ( email )

28,Xianning West Road
Xi'an, Shaanxi 710049
China

Gang Li

Xi'an Jiaotong University (XJTU) - School of Management ( email )

28,Xianning West Road
Xi'an, Shaanxi 710049
China

Shengli Li

Peking University ( email )

No. 5 Yiheyuan Road
Peking University
Beijing, Beijing 100871
China

Quan Zheng (Contact Author)

University of Science and Technology of China - School of Management ( email )

Hefei, Anhui
China

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