The Role of Product and Market Information in an Online Marketplace

In this paper, we study how the provision of product information and/or market information affects buyers' and sellers' behavior in an online marketplace, and how the online marketplace performs financially in regards to sales and sales volume as a result. We first identify the Pareto-dominant equilibrium for the sellers' pricing decisions and the impact of market parameters on the platform's sales and sales volume, under various information structures. Then, we analytically characterize the platform's optimal information strategy as a function of the underlying market parameters and whether the platform's goal is to maximize sales or sales volume. We find that providing product and market information may back re on the platform by jeopardizing its financial performance. In particular, in a seller's market, the platform should provide both product and market information to the sellers and buyers. In a buyer's market, however, it is optimal for the platform to conceal the product information. In addition, the market information will add actual value in a buyer's market only when the goal of the platform is to maximize sales rather than maximize sales volume. We demonstrate numerically that information is more valuable to the platform when it is maximizing sales as opposed to sales volume, and when it faces a seller's market as opposed to a buyer's market. Finally, we establish the robustness of our main findings through various extensions