Pricing on Freelance Platforms: Theory and Experiment

Abstract

Pricing on freelance platforms is challenging as both customers and freelancers are involved in the product co-creation process. Their collaborative efforts influence the product’s quality and price. Using a theoretical framework and an experiment, we show that some users of freelance platforms could benefit from setting the price before co-creation rather than after. Our model predicts that both the freelancer and the customer will invest more effort to create a higher-quality product with early pricing. As a result, the freelancer earns a higher profit, and the customer gains a higher consumer surplus. We conducted experiments to test these hypotheses and found that when early pricing is implemented, freelancers do set higher prices and achieve greater profits. However, contrary to theoretical predictions, neither product quality nor consumer surplus increases when compared to late pricing. The discrepancy between the theory and experimental results arises because myopic freelancers exploit early pricing by charging customers higher prices without investing sufficient effort.

Keywords: pricing, freelance platforms, co-creation, Game Theory, experiments