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Peer-to-Peer Markets with Bilateral Ratings

Author

Listed:
  • T. Tony Ke

    (Department of Marketing, Chinese University of Hong Kong, Shatin, Hong Kong)

  • Monic Sun

    (Department of Marketing, Boston University, Boston, Massachusetts 02215)

  • Baojun Jiang

    (Department of Marketing, Washington University in St. Louis, St. Louis, Missouri 63130)

Abstract

Peer-to-peer (P2P) markets have become a critical aspect of the modern economy. We consider a P2P market in which a time-sensitive service is provided through a platform that matches providers of varying qualities to customers of varying costs. The P2P platform features bilateral ratings, which distinguish it from a traditional market: ratings of a provider reveal the provider’s service quality and ratings of a customer reveal the customer’s service cost. The existence of a cost measure in the P2P market leads to novel pricing considerations: a provider can attract low-cost customers by charging a low price, leading to an endogenous composition effect. As a result, equilibrium prices may decrease as customers become more costly to serve or as the platform’s commission rate gets higher. Under certain conditions, high-quality providers may even charge a lower equilibrium price than low-quality providers in order to cherry-pick low-cost customers. Exploratory analysis reveals that, compared with unilateral ratings, bilateral ratings may soften provider competition and raise equilibrium prices as the providers target customers in different cost segments. History: Anthony Dukes served as the senior editor. Funding: This work was supported by the NET Institute (summer research fund). Supplemental Material: The online appendix is available at https://doi.org/10.1287/mksc.2022.0158 .

Suggested Citation

  • T. Tony Ke & Monic Sun & Baojun Jiang, 2024. "Peer-to-Peer Markets with Bilateral Ratings," Marketing Science, INFORMS, vol. 43(5), pages 1081-1101, September.
    • Handle: RePEc:inm:ormksc:v:43:y:2024:i:5:p:1081-1101
    DOI: 10.1287/mksc.2022.0158
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