The Limits of Centralized Pricing in Online Marketplaces and the Value of User Control

To decentralize or centralize — that’s the question! With their asset-free or asset-light models, online platforms have been able to scale rapidly using a decentralized collection of providers. But with decentralization comes centralization, as these platforms are now centralizing (taking control away from providers) key decisions — turning them into firm-market hybrids.

Our recent paper (forthcoming in Management Science) reports a field experiment at a large P2P short-term car rental platform moving from decentralized to centralized pricing. We find that as pricing control is taken away from providers, they retaliate by reducing availability, canceling transactions, and exiting the platform. This is despite revenue increases! Providing partial control mitigates retaliation, while maintaining revenue increases. One explanation is that the provider costs are unobserved by the platform and not properly accounted for by the platform. This is joint work with my amazing co-authors Apostolos Filippas and Arun Sundararajan.

Paper: http://www.apostolos-filippas.com/papers/centralizing.pdf

Slides: https://srikanth-jagabathula.com/docs/Centralized-Prizing-in-Online-Platforms.pdf