Quality disclosure in sharing economy platform with network externality under consumer risk aversion

Abstract

Purpose This work aims to examine the quality disclosure strategy of sharing economy platforms with network externality, considering consumer risk aversion.Design/methodology/approach The game theory, sensitive analysis and numerical study are used herein. The equilibria are derived from the game theory. The quality disclosure strategy is analyzed by profit comparison. To further understand the characteristics of the optimal disclosure strategy, sensitive analysis and numerical studies are conducted to detail the analytical results.Findings Regardless of market structure, the quality disclosure decision problem is a trade-off between information effect and cost effect. Consumer risk aversion is a factor that can incentivize low-quality platforms to disclose quality. Both consumer risk aversion and network externality influence the quality disclosure strategy through information effect. Interestingly, for different competition intensities, consumer risk aversion and network externality could lead to positive or negative information effects of removing uncertainty. The authors show that under certain conditions, consumer risk aversion and network externality could induce more quality concealment.Research limitations/implications The quality is set exogenous herein, and the integrated process of quality investment and information disclosure is an interesting direction for future research.Practical implications This work provides managerial insights for sharing economy platforms regarding how to wisely consider consumer risk aversion and network externality when sharing quality information.Originality/value This work identifies two effects that determine quality disclosure strategy and specifies the role of each factor on quality disclosure.