65 / 2024-04-18 12:28:26

Managing Online Service Platforms: Service Provision, Contract Design, and Customer Review

platform,signaling,accommodation sharing,customer review,value-added service

This paper studies the service provision, contract design, and customer review of online service platforms in the presence of asymmetric quality information. We consider an accommodation-sharing platform on which a landlord lists a house for booking. The house can be of high or low quality, which is unknown to customers. To increase customers’ willingness to pay, the landlord can provide value-added service. For every successful booking, the platform charges a commission fee. By analyzing the equilibrium decisions of the three parties, we find that the high-quality landlord can adopt a higher service level and price to signal quality. A costless separating equilibrium emerges if the high-quality landlord has a significant advantage in service cost. To maximize its profit, the platform’s optimal commission fraction changes based on the service cost factor and the reservation profit difference between the high and low-quality landlords. We further develop a two-period model in which the second period's customer may learn the house quality from the review left by the first period's customer. We find that the emergence of review makes a costless separating equilibrium achievable even if the two types of landlords have similar service costs. The high-quality landlord benefits from a higher review access rate, but interestingly, a moderate review access rate and service cost factor maximize social welfare.