On the Disclosure of Promotion Value in Platforms with Learning Sellers

On the Disclosure of Promotion Value in Platforms with Learning Sellers

By Yonatan Gur, Gregory Macnamara, Daniela Saban
2020Working Paper No. 3865
In many marketplaces that facilitate trade with the objective of maximizing consumer surplus, prices are set by revenue-maximizing sellers but platforms can influence prices through (i) price-dependent promotion policies that can increase demand for a product by featuring it in a prominent position in the webpage and (ii) the information revealed to sellers about the value of being promoted. Identifying effective joint information design and promotion policies is a challenging dynamic problem as sellers can sequentially learn the promotion value from sales observations and update prices accordingly. We introduce the notion of confounding promotion policies, which are designed to prevent a Bayesian seller from learning the promotion value (at the expense of the short-run loss of diverting consumers from the best product offering). Leveraging these policies, we characterize the maximum long-run average consumer surplus that is achievable through joint information design and promotion policies when the seller sets prices myopically. We then establish a Bayesian Nash equilibrium by showing that the seller’s best response to the platform’s optimal policy is to price myopically at every history. The equilibrium we identify is platform-optimal within the class of horizon-maximin equilibria, in which strategies are not predicated on precise knowledge of the horizon length, and are designed to maximize payoff over the worst-case horizon. Our analysis allows one to identify effective platform policies in a broad range of demand models.