Information Provision in Two-Sided Platforms: Optimizing for Supply

Abstract

Although information design has recently received significant attention as a tool for shaping consumers’ purchase behavior, little is known about its use and implications in two-sided marketplaces, where both supply and demand consist of self-interested strategic agents. In this paper, we develop a model of a two-sided platform that facilitates transactions between vertically differentiated suppliers and consumers who differ in their quality preferences. We focus on illustrating the potential benefits of optimal information provision in managing the supply side of the marketplace, including the entry, exit, and pricing decisions of potential suppliers. We show that the revenue-optimal information provision policy often involves delaying the disclosure of information regarding the quality of the available suppliers. When the outside options available to consumers are relatively unattractive, we find that information design can help the platform achieve a more revenue-efficient matching between supply and demand. On the other hand, when consumers have access to attractive outside options, we show that information design can accelerate the discovery of high-quality suppliers, leading to an increase in the platform’s total transaction volume. Moreover, in cases where the platform benefits from commission subsidies to incentivize the entry of new suppliers, information design can be used to achieve the same goal while allowing the platform to earn higher commission revenue. Overall, our numerical experiments suggest that the impact of information design on platform revenue, as well as on consumer surplus, can be substantial. This paper was accepted by Vishal Gaur, operations management. Supplemental Material: The online appendix is available at https://doi.org/10.1287/mnsc.2023.4894 .