17 October 2019

Research pick: Asymmetrical profits - "IJRM-asymmetrical"

Digital technology and in particular the advent of online social media and the smartphone have facilitated the widespread use of consumer-to-consumer commerce and services. Online platforms such as eBay and Taobao allow individuals to access buying and selling marketplaces that simply did not exist for previous generations. Surprisingly, the sharing and servicing of accommodation and transport through the likes of Airbnb and Uber has also opened up a whole new world to the individual that was the commercial preserve of companies and corporations.

Writing in the International Journal of Revenue Management, Jagan Jacob of the Simon Business School, at the University of Rochester, in Rochester New York, USA suggests that this consumer-to-consumer provision and uptake of goods and services is just as asymmetrical as it ever was in terms of people on one side of the equation being the consumers and the other side the providers. This is perhaps intrinsic to any buying and selling scenario or any provision of services, whether a bed for the night or transport from A to B. As such, there are “challenges”.

The online systems do, of course, allow transactions to take place between users who are usually complete strangers in the wider context. There is, therefore, a pressing need for users and providers to somehow validate themselves but without the unwarranted sharing of personal and private information. Jacob’s paper suggests that a matching mechanism can maximise platform profit when users are heterogeneous with some more likely to be “more good” than others. However, there is a scenario whereby platform profit rises when it allows users with a higher probability of being “bad” to join too. This presumably cannot be to the benefit of the average good user or provider.

Jacob, J. (2019) ‘IJRM-asymmetrical’, Int. J. Revenue Management, Vol. 11, Nos. 1/2, pp.89–125.

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