How Effective is Suggested Pricing?: Experimental Evidence from an E-Commerce Platform
69 Pages Posted: 22 Nov 2024 Last revised: 22 Nov 2024
Date Written: November 10, 2023
Abstract
Many platforms face the challenge of not being able to directly set prices for products, instead relying on each seller to do so. However, these sellers often lack the experience and information about market conditions to price their products effectively, leading to price inefficiencies. To address this, some platforms offer suggested prices, but the impact of these recommended prices remains uncertain. In this paper, we investigate the effectiveness of platform-suggested prices in influencing sellers’ pricing decisions and selling outcomes. In collaboration with an e-commerce platform, we conduct a field experiment that varies whether a seller receives a suggested price, and if so, the suggested price itself. We find that a 30% change in suggested prices leads to a 5% change in listing prices in the same direction. Suggested prices are more influential when pricing is more challenging, such as for new sellers and items in non-new condition. Lower suggested prices improve both the likelihood of sale and the resulting seller revenue. We show, in a subsequent experiment, that these results are likely to generalize to the full equilibrium. Our findings imply that platform-suggested pricing is an effective compromise that guides seller pricing while allowing them to incorporate their private information.
Keywords: Digital Platforms, Marketplace Design, Field Experiments, Price Experiments, Interference, Pricing
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