Managing Online Service Platforms with Information Heterogeneity : Service Provision and Contract Design

This paper studies the service provision and contract design for online service platforms in the presence of information heterogeneity among customers. We consider an accommodation-sharing platform on which a landlord lists a house for booking. The house can be of high or low quality, and a customer knows the house quality with a probability, representing the customer’s informed level. To increase the customer’s willingness to book, the landlord or the platform 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 although the price is a better signaling device than the level of value-added service from the perspective of the customer, the landlord can leverage the service level to signal the house quality to an uninformed customer when the price is given. The platform’s optimal commission and profit can increase or decrease with the customer’s informed level, so raising the informed level does not always benefit the platform. Interestingly, the customer may prefer a low informed level as well. We also establish guidance on whether the value-added service should be provided by the platform or the landlord. We find that social welfare is higher when the platform provides the service if and only if the landlord’s reservation profit is small, the house valuation is high, or the service cost is small