Pricing Control and Regulation on Online Service Platforms

76 Pages Posted: 8 Nov 2021 Last revised: 24 Jun 2022

See all articles by Gerard P Cachon

Gerard P Cachon

The Wharton School - Operations, Information and Decisions Department

Tolga Dizdarer

University of Pennsylvania, The Wharton School, Operations & Information Management Department, Students

Gerry Tsoukalas

University of Pennsylvania - The Wharton School; Boston University; Luohan Academy

Date Written: June 22, 2022

Abstract

Online service platforms enable customers to connect with a large population of independent servers and operate successfully in many sectors, including transportation, lodging, and delivery, among others. We study how prices are chosen and fees are collected on the platform. The platform could assert full control over pricing despite being unaware of the servers' costs (e.g., ride sharing). Or the platform could allow unfettered price competition among the servers (e.g., lodging). This choice influences both the amount of supply available and the overall attractiveness of the platform to consumers. When the platform collects revenue via a commission or a per-unit fee, neither price delegation strategy dominates the other. However, the platform's best payment structure is simple and easy to implement - it is merely the combination of a commission and a per-unit fee (which can be negative, as in a subsidy). Furthermore, this combination enables the delegation of price control to the servers, which may assist in the classification of the servers as contractors rather than employees. A similar approach can be used to maximize profits by fully disintermediated platforms (i.e., no central owner), such as those enabled by blockchain technology.

Keywords: blockchain, decentralized pricing, gig economy, platforms, revenue management, smart contracts

JEL Classification: D82, D86, L1, L11, L2, L8, L9, O3, K2

Suggested Citation

Cachon, Gerard P and Dizdarer, Tolga and Tsoukalas, Gerry, Pricing Control and Regulation on Online Service Platforms (June 22, 2022). Available at SSRN: https://ssrn.com/abstract=3957209 or http://dx.doi.org/10.2139/ssrn.3957209

Gerard P Cachon

The Wharton School - Operations, Information and Decisions Department ( email )

Philadelphia, PA 19104
United States

Tolga Dizdarer

University of Pennsylvania, The Wharton School, Operations & Information Management Department, Students ( email )

Philadelphia, PA 19104
United States

Gerry Tsoukalas (Contact Author)

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

Boston University ( email )

595 Commonwealth Avenue
Boston, MA 02215
United States

Luohan Academy ( email )

No. 556, Xixi Road, Z Space
Xihu District
Hangzhou, Zhejiang 310013
China

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