The Value of Bargaining in Online Platform Markets

Abstract

Bargaining is an important pricing mechanism, prevalent in both the online and offline worlds. However, little empirical work on the value of bargaining in markets exists, primarily due to the lack of real-world bargaining data. In the first essay, "Meet Me Halfway: The Value of Bargaining", I leverage the availability of rich, transaction-level data on bargaining outcomes on an online platform to quantify the value of bargaining for sellers, buyers, and the platform. I incorporate the decision to bargain, the bargaining realization, and the purchase decision into a structural model, and I perform counterfactual analyses to show the value of allowing bargaining on the platform. I do this by disallowing bargaining, which means that all sellers on the platform must use a fixed-price mechanism. I find that sellers' profits are higher under the fixed-price only regime. The benefits are heterogeneous across sellers, however, with sellers with low reputation levels, high detailed seller ratings, and non-promotion products benefiting more. I also show that buyers' bargaining cost savings are economically significant. Thus, my findings suggest banning bargaining is beneficial for both buyers and sellers, and therefore for a social planner as well. I provide some reasons for why bargaining still exists on the platform despite the above findings. Finally, I show that the results are robust to the assumptions and can be replicated in different product categories.

In the second essay, "Negotiation Pricing on a Health Platform Market: Bringing Hospitals and Patients Together", I study the bargaining between a business-to-consumer platform and the business-side of the platform. The platform connects hospitals with patients who seek health checkups. As a business entity, the platform negotiates with hospitals on the depth of price discount, online or offline payment, and clearing cycle (per transaction, weekly, or monthly). I investigate how the consumer network size and the hospital network size affect the hospitals' willingness to sign contracts and join the platform and the three key negotiation outcomes. I find that both network sizes have positive significant effects on hospitals' willingness to sign contracts and on the three negotiation outcomes, making hospitals more likely to accept terms that are more favorable to the platform. To further investigate the hospital side, I separate public and private hospital network sizes and find their effects on negotiation are heterogeneous. I discuss the findings and explore potential mechanisms behind these findings.