Strategic information platforms - Selective disclosure and the price of "free"

Chen Hajaj, David Sarne

Research output: Chapter in Book/Report/Conference proceedingConference contributionpeer-review

10 Scopus citations

Abstract

This paper deals with platforms that provide agents easier access to the type of opportunities in which they are interested (e.g., eCommerce platforms, used cars bulletins and dating web-sites). We show that under various common service schemes, a platform can benefit from not necessarily listing all the opportunities with which it is familiar, even if there is no marginal cost for listing any additional opportunity. The main implication of this result is that platforms should extract their expected-profit-maximizing service terms not based solely on the fees charged from users, but they should also use the subset that will be listed as the decision variable in the optimization problem. The analysis applies to four well-known service schemes that a platform may use to price its services. We show that neither of these schemes generally dominates the others or is dominated by any of the others. For the common case of homogeneous preferences, however, several dominance relationships can be proved, enabling the platform to identify the schemes that should be used as a default. Furthermore, the analysis provides a game-theoretic search-based explanation for a possible preference of buyers to pay for the service rather than receive it for free (e.g., when the service is sponsored by ads), a phenomena that has been justified in prior literature typically with the argument of willingness to pay a premium for an ad-free experience or more reliable platforms. The paper shows that this preference can hold both for the users and the platform in a given setting, even if both sides are fully strategic.

Original languageEnglish
Title of host publicationEC 2014 - Proceedings of the 15th ACM Conference on Economics and Computation
Pages839-856
Number of pages18
DOIs
StatePublished - 2014
Externally publishedYes
Event15th ACM Conference on Economics and Computation, EC 2014 - Palo Alto, CA, United States
Duration: 8 Jun 201412 Jun 2014

Publication series

NameEC 2014 - Proceedings of the 15th ACM Conference on Economics and Computation

Conference

Conference15th ACM Conference on Economics and Computation, EC 2014
Country/TerritoryUnited States
CityPalo Alto, CA
Period8/06/1412/06/14

Keywords

  • economics of information
  • platforms and services
  • price of free
  • service schemes
  • two-sided markets

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