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

We report experimental and quasi-experimental evidence from a sharing economy marketplace that transitioned from decentralized to centralized pricing. Centralized pricing increased the utilization of providers' assets, resulting in higher revenues but also higher transaction costs. Providers who were barred from accessing the price system made nonprice adjustments, including reducing the availability of their assets, canceling booked transactions, and exiting the market. Providers who retained partial pricing control reacted substantially less but experienced similar revenue increases. We highlight the challenges of implementing centralized pricing and assessing its welfare effects. We show that partial control can mitigate these challenges, allowing providers to express their private and heterogeneous preferences while maintaining the benefits of centralization.

Automated summary

We present evidence from an experiment on a sharing economy marketplace that transitions from decentralized to centralized pricing. Centralized pricing leads to increased asset utilization and higher revenues, but also higher transaction costs. Providers who are prohibited from using the priced system make non-price adjustments, such as reducing asset availability, canceling booked transactions, and exiting the market. Providers who retain partial pricing control have smaller reactions but similar revenue increases. We emphasize the challenges of implementing centralized pricing and evaluating its welfare effects.