Name Your Price: Dual Strategic Responses to Platform Design Change

Price-setting is one of the most crucial platform design choices, which can make the difference between a platform marketplace thriving or failing. While centralized (prices set by the platform owner) vs. decentralized pricing (prices set by users) may be a fixed choice for some platforms, others may also undergo a design change — making a switch from one model to another with a goal of maximizing platform's value potential. We explore a unique context whereby a major platform for household services made a pricing design change — passing the control over price setting from the platform owner to service providers. We unravel differing responses between incumbents and new entrants, offering a rare account of individual providers' responses to the introduction of decentralized pricing. Our research reveals that incumbents, despite their established reputation, exhibit risk aversion in altering prices, prioritizing stable client relations over the prospects of higher earnings. Conversely, new entrants raise their prices after securing some visibility and reputation (i.e., earning 5-star rating). At the platform level, a shift to decentralized pricing has enhanced the platform owner's revenue stream while negatively impacting providers' ability to secure demand and revenues, on average. Our findings offer a different account of how autonomy over strategic decisions such as price-setting might have negative consequences on service providers.