Should Airbnb and Amazon Hoard Information to Maximize Revenue?

As online marketplaces such as Amazon and Airbnb come to dominate increasingly wide swaths of the American economy, one big question for the platform operators is how they can generate the most revenue for themselves and their vendors. Would Amazon and its partners be best off if the retailing behemoth shared the vast amounts of data it gathers on consumers and their behavior in various sectors, or not?

Chicago Booth’s John R. Birge, Chinese University of Hong Kong’s Hongfan Chen (a graduate of Booth’s PhD Program), Duke’s N. Bora Keskin, and Booth’s Amy Ward write that, “perhaps surprisingly,” a policy such as Amazon’s, in which a platform tells its vendors absolutely nothing, isn’t necessarily terrible—but there may be a more optimal level of data-sharing.

Online platforms make money by collecting commissions from individual sellers, such as homeowners offering their places to travelers on Airbnb or freelancers peddling their services on Upwork. In most cases, sellers set their own rates. A lack of information on consumer demand can mean they fail to set optimal prices, resulting in lost revenue for themselves and the platforms. Meanwhile, the platforms are in a position to compile tons of data on clients over time, including browsing and purchasing histories and personal information that may affect buying choices.

Different platforms follow different models for information sharing with vendors. Airbnb provides estimated earnings information to hosts based on factors including booking data in their area. It also offers price-setting incentives. For example, hosts pay a fee to join the platform’s premium program, which then steers them toward earning a “Plus” classification and higher listing prices. Upwork shares reports on the popularity of different tasks. And then there’s Amazon’s practice of not sharing demand information with vendors—what the researchers refer to as a “do-nothing” policy.

For most platforms, the do-nothing approach wouldn’t be ideal because the lack of transparency means sellers are largely in the dark on price setting, the researchers observe. However, they find there are times when doing nothing might work to both the sellers’ and a platform’s advantage.

In the case of Airbnb, Birge says, a do-nothing approach might work in a smaller city where two hosts in different neighborhoods charge the same high prices, are both booking rooms for about half of the available nights, and don’t know that customers like their neighborhoods equally and aren’t making choices on the basis of location.

“By doing nothing, Airbnb earns high commissions,” Birge says. “But if it reveals to the hosts the information that the customers are not choosing on the basis of location, the hosts might realize that by cutting prices, they’ll book more nights and increase their revenue.” Hosts in two equally desirable neighborhoods might compete with each other by lowering their per-night prices—and Airbnb’s commissions.