Pricing Control and Regulation on Online Service Platforms

An open debate in platform design is who should control pricing: the platform (centralized pricing) or its service providers (decentralized pricing). We show that a key trade-off is between regulating competition and enabling price tailoring. Centralized pricing allows the platform to manage competition, but it faces information asymmetry as it cannot observe agent costs. Decentralized pricing lets agents adjust prices to their costs, but without oversight, competition can become too strong (prices too low) or too weak (prices too high). For commission-based platforms, either form of price control can prevail depending on market conditions, implying that neither dominates. However, a relatively simple tweak—adopting an affine fee structure based on posted prices or quantities served—allows the platform to decentralize pricing control without sacrificing optimality. This flexibility further supports agent classification as independent contractors, offering platforms a valuable strategic option for how to structure their workforce. This paper was accepted by Itai Ashlagi, revenue management and market analytics. Funding: Supporting grants have been provided by the Mack Institute for Innovation Management and the Ripple University Blockchain Research Initiative. Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2023.04078 .