Worry not rareness but disparity: Impact of fairness concerns on platforms’ pricing and matching decision in competitive two-sided markets

Abstract

In two-sided markets, user fairness concerns affect a platform’s operational decisions. By constructing a hoteling-based pricing model of platforms, this study explored the impact of fairness concerns on pricing, matching, and profits in competitive two-sided markets. The conclusion of the findings of this study is that the platform will perform tilted pricing when only one side of the user conducts fairness concern behavior. Meanwhile, the difference in the platform’s pricing for bilateral users depends on the size of their “entry value” and the platform charges lower prices to users who bring them greater value. When both of the bilateral users conduct fairness concerns behaviors, the platform will capture and exploit the “disparity” mentality to obtain higher pricing power. The matching rate of the platform is affected whenever users exhibit fairness concern behaviors. Furthermore, the platform’s matching rate is lower when only one user has a higher fairness concern. Contrary to the traditional view that fairness concerns harm a platform’s profit, our findings reveal the mechanism by which unit surplus and fairness concerns jointly affect a platform’s profit. The results of our analysis demonstrate that platform operations managers can perform pricing by fully utilizing the fairness concerns of bilateral users.