Pricing Control and Regulation on Online Service Platforms

72 Pages Posted: 8 Nov 2021 Last revised: 15 Dec 2023

See all articles by Gerard P Cachon

Gerard P Cachon

The Wharton School - Operations, Information and Decisions Department

Tolga Dizdarer

Boston College - Carroll School of Management

Gerry Tsoukalas

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

Date Written: December 12, 2023

Abstract

An open debate in platform design is who should control pricing: the platform (centralized pricing), or its service providers (decentralized pricing)? We show the key trade-off is between the regulation of competition and the facilitation of price tailoring. Centralized pricing allows the platform to control the competition that occurs among the agents but struggles with information asymmetry because platforms cannot fully observe agent costs. Decentralized pricing lets agents tailor their prices to their private costs, but without central guidance, due to agent self-interest, competition on the platform can either be too strong (prices are too low) or too weak (prices are too high). For commission-based platforms, either form of price control can prevail depending on market conditions, implying neither dominates. However, a relatively simple tweak to payments -- adopting an affine fee structure based on prices posted or quantities served -- allows the platform to optimally control the market in a fully decentralized manner. In turn, decentralization further supports agent classification as independent contractors, which provides the platform with a potentially valuable strategic option for how to structure their workforce.

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 (December 12, 2023). 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

Boston College - Carroll School of Management ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
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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