Information Provision from a Platform to Competing Sellers: The Role of Strategic Ambiguity

Problem definition : With the rapid growth of e-commerce, platforms are able to gather large quantities of data, which can result in high-precision predictions regarding consumer purchasing patterns and future demand. A fundamental question is whether a platform has the incentives and ability to share such nonverifiable information with its sellers. Methodology/results : We show that when information is nonverifiable, sharing the precise value of the platform’s private information by means of cheap-talk cannot result in an equilibrium. This outcome is due to the incentive of the platform to portray a more favorable market condition than that predicted, in order to encourage the sellers to raise their prices and improve market efficiency. In spite of this negative result, we demonstrate that the level of incentives misalignment between the platform and its sellers is bounded; consequently, a region-forecast information-sharing equilibrium can emerge. In this equilibrium, the support of the platform’s private information is divided into several intervals, and the platform strategically chooses to report truthfully the interval containing its private information. The structure of the partition is influenced by two main factors: the incentive of the platform to reduce market uncertainty for the sellers, and the motivation of the platform to soften competition among the sellers. Although both the sellers and the platform benefit from the ability to share some level of information, such an outcome hurts the consumers. Managerial implications : This work explains the observed practice of a platform providing nonverifiable information to its sellers via cheap-talk. The main advantage of this equilibrium is the ability to share information in a costless manner; however, the amount of information that can be shared is limited and is influenced by the level of market competition between the sellers.