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

Abstract

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. Barred from accessing the price system, providers made non-price 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 in 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.