That’s the question users (referred to as “hosts”) on platforms like Airbnb and car-sharing company Turo face when deciding when to list their homes, vehicles and other items for rent.
It is also a matter of interest Ahal Basabu, Kellogg business professor. Platforms like these are expected to increase revenue 335 billion dollars by 2025, so it is important to understand their dynamics. While previous research has mostly looked at how shoppers act on such platforms, Bassamboo and doctoral student Kellogg Neha Sharma were interested in the seller’s behavior: specifically, “if they report [their items] once they know they have availability or wait until later to commit,” says Bassamboo.
There are pros and cons to both approaches. If the seller lists an item earlier than it is available, it increases the chance that their item will be rented. But it can also mean lower revenue because demand may not be as high or the platform may offer discounts for early booking.
Conversely, if they wait to deposit until closer to the actual availability date, they risk not renting it at all. But they could also enjoy greater revenue because buyers may have a more urgent need — and may be willing to pay more, as evidenced by the “high pricing” many platforms charge.
With partners Sumanda Singha and Milid Sohoni of the Indian School of Business, the researchers created a model seller and buyer behavior on a hypothetical platform. They found that sellers tended to wait until the time their product was available before listing it, hoping to maximize their profits. However, over time, this behavior has resulted in low availability of items at certain times and lower returns for both sellers and the platform.
The best solution, the researchers found, was for the platform to offer incentives to sellers – such as a higher percentage of the sale – to list them earlier.
A model platform
The researchers’ questions about the timing of the listings were sparked by actual observations.
Working with an India-based platform that allows car owners to rent out their vehicles to other users – with more than 3,000 rentals completed per day – they saw that as renters became more experienced with the platform, they tended to list their cars later, closer to the time they would actually be available.
“We wanted to know if this was good for the platform and if it made sense for the platform to look at different types of contracts and incentives given this seller behavior,” says Sharma.
To explore these questions, the researchers created a model of a platform in which prices would dynamically adjust based on capacity. More capacity on the platform—such as more cars for rent—generally resulted in lower prices. That is, unlike other consumer-to-consumer platforms such as Airbnb, the searchers’ platform sets the prices, not the seller.
“The platform sets the prices,” says Sharma, “but it takes into account the state of the world”—including factors that affect supply, such as the volume of offers available, and demand, which can be driven by factors such as the time of time and demand. weather.
In their model, the platform also takes a fixed percentage of the sale price as a fee, regardless of when the listing is made. As for customers, they fall into two broad categories in the model: those who wanted to book well in advance of their need, and those who tried to secure a reservation in time for their need. Similarly, users could list well in advance of expected availability or shortly before.
The waiting game
As in the real car rental platform, in some demand distributions, the model showed that users tended to wait to submit their details until very close to when they would be available. “They didn’t see any point in reserving their asset in advance and getting a lower price for it,” says Sharma. “So they decided to commit later when they felt they could get a higher price.”
Unsurprisingly, this hasn’t been ideal for buyers, especially those looking for early bookings. “If all the vendors list later, it results in ruining the service for buyers who want to get the asset early,” says Sharma. “They come to the website and find nothing available.”
According to this, they found that customers who wanted to book very close to the time they needed had 60 percent more options than those who tried to book early. “It’s too bad that a large part of your customer population can’t be served now because of the behavior of suppliers,” says Sharma.
Additionally, as the bid increases when users list closer to a given date, those users and the platform both lose because high bid means lower prices. Essentially, even if individual users think they will make more money by waiting on the list, doing so en masse means that they and the platform end up making less money.
“If some of the supply had been connected earlier,” Sharma says, “it could have meant higher prices for the platform and a higher level of service.”
Motivation issue
What can a platform do to get the best results?
“It’s no surprise that if the platform takes full control of when to list the data, it will come out ahead,” says Bassamboo. But this may not sit well with users who are renting out their property and could potentially reduce the bid if people decide not to list their bids.
A second, more feasible solution involves sharing information, Sharma says, although it’s not ideal: “Users who rent out their property have some belief in what demand will be like. However, the platform can provide them with more information about the distribution of demand and this will help them decide when to list and prevent service disruptions and lower revenue for both renters and the platform.”
However, this approach can be complicated as it is unclear exactly what information needs to be shared, and listing owners have other options, such as third-party tools to help them understand demand patterns.
A third and better option is for platforms to offer contracts that incentivize users to list earlier. For example, the platform could take a lower percentage of rental prices for users who list well in advance of availability and a higher percentage for those who wait until the last minute. “We find this to be the optimal thing to do,” says Sharma.
Indeed, the car rental platform the researchers worked with is already considering how to change their contracts and incentives based on the findings.
“Using the percentage in this way better aligns the incentives of both sides of the markets (listers and renters),” says Bassamboo. “The renter can rent the product sooner and for less money, and the vehicle owner enjoys a higher percentage of the rent collected by the platform.”
