Transparent marketplace with pricing reflecting product quality disclosure.

Quality Disclosure Secrets: How Smart Pricing Can Boost Platform Revenue

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Elliot Brynn in Business & Economy August 2025 • 4 min read.

"Unlock the strategies platforms use to maximize profits by incentivizing honest quality reporting from producers."


In today's digital marketplace, platforms like Amazon, Instagram, Google, and LinkedIn thrive on providing services that facilitate economic exchanges. These platforms offer a space for senders—producers, entrepreneurs, and job seekers—to disclose private information to influence receiver beliefs. The ability to strategically price and manage these disclosures is essential for platforms to capture substantial surplus and maintain a competitive edge.

However, pricing disclosure is not without its challenges. Strategic uncertainty arises from the discretionary nature of a sender's ad plan, which is often unobservable to the receiver. This leads to interdependence between sender actions and receiver beliefs, where skepticism about product quality or ability grows when disclosure is absent. This skepticism, in turn, affects the sender's willingness to invest in ads, creating a complex dynamic that platforms must navigate.

New research explores how platforms can optimize advertisement pricing to maximize revenue guarantee across all possible equilibria. This involves understanding robustly optimal pricing schemes, inducing full disclosure, and strategically dividing surplus to address empirical puzzles related to advertising prices and costs. This analysis reveals that the key lies in designing quality-dependent and disclosure probability-dependent prices that strategically tackle uncertainty.

Strategic Pricing: The Key to Unlocking Full Disclosure

Transparent marketplace with pricing reflecting product quality disclosure.

At the heart of this pricing strategy is a platform that charges producers for disclosing hard evidence of product quality to consumers before a transaction. The approach is about strategically offering prices that depend on both the quality of the product and the likelihood of disclosure. The goal? To maximize revenue across all possible scenarios, or equilibria.

The core mechanism involves offering off-path disclosure options, which incentivize each producer type to "conquer themselves" by continually striving for full disclosure. This leads to advertising price functions that are strictly convex, meaning the cost of each additional unit of disclosure probability increases. This approach ensures that producers are always motivated to reveal more, as the benefits of increased disclosure outweigh the costs.

Here are the two central characteristics of the robustly optimal menu profile:
  • Self-Conquering Incentives: The platform uses a continuum of off-path plans to encourage each type of producer to continually pursue full disclosure. These plans serve as strategic baits, disrupting undesirable equilibria and pushing producers toward greater transparency.
  • Prioritized Disclosure: The platform prioritizes attracting higher-quality producers by offering them higher rents. This is achieved without adverse selection, as the sequential self-conquering process ensures that higher types are compensated for giving up outside values, which decline as skepticism worsens.
These elements combined yield a pricing environment where strategic uncertainty is minimized, and revenue is maximized. Comparative statics show that when more informative hard evidence is available, the platform’s revenue guarantee increases. In essence, the more transparent the information, the greater the platform's ability to generate revenue.

Practical Implications for Platforms

The insights from this pricing model offer several actionable strategies for platforms aiming to optimize revenue and ensure quality disclosure. By implementing quality-dependent and disclosure probability-dependent pricing, platforms can effectively tackle strategic uncertainty and create an environment that incentivizes producers to continually strive for full disclosure. This not only boosts revenue but also fosters greater trust and transparency within the platform ecosystem.

About this Article -

This article was crafted using a human-AI hybrid and collaborative approach. AI assisted our team with initial drafting, research insights, identifying key questions, and image generation. Our human editors guided topic selection, defined the angle, structured the content, ensured factual accuracy and relevance, refined the tone, and conducted thorough editing to deliver helpful, high-quality information.See our About page for more information.

This article is based on research published under:

DOI-LINK: https://doi.org/10.48550/arXiv.2404.06019,

Title: Robust Pricing For Quality Disclosure

Subject: econ.th

Authors: Tan Gan, Hongcheng Li

Published: 09-04-2024

Everything You Need To Know

1

How do platforms like Amazon and Instagram use pricing to encourage quality disclosure?

Platforms employ quality-dependent and disclosure probability-dependent pricing. This means that producers are charged based on the quality of their product and the likelihood of them disclosing this information. This method incentivizes producers to reveal hard evidence of product quality, leading to increased transparency and, ultimately, higher revenue for the platform.

2

What is 'strategic uncertainty' and how does it affect platforms and their revenue?

Strategic uncertainty arises from the discretionary nature of a sender's ad plan, which is unobservable by the receiver. If a sender, like a producer on Amazon, doesn't disclose information, receivers may become skeptical about the quality of the product or service. This skepticism can reduce the sender's willingness to invest in ads and can ultimately decrease the platform's revenue. Addressing strategic uncertainty is crucial for maximizing revenue.

3

What are 'off-path disclosure options' and why are they important in this pricing model?

Off-path disclosure options are alternative plans offered by the platform to incentivize producers to continually strive for full disclosure. These plans act as 'strategic baits' that disrupt undesirable equilibria where producers might be hesitant to disclose information. They motivate producers to improve transparency, ensuring they are always motivated to reveal more, as the benefits of increased disclosure outweigh the costs.

4

How does the pricing model prioritize higher-quality producers?

The platform prioritizes higher-quality producers by offering them higher rents. This is achieved through a sequential self-conquering process. Higher-quality producers are compensated for giving up outside values, which decrease as skepticism worsens. This approach ensures that producers are incentivized to disclose their high quality, leading to a more trustworthy marketplace.

5

What are the two central characteristics of the robustly optimal menu profile and how do they benefit a platform?

The robustly optimal menu profile includes two key characteristics: Self-Conquering Incentives and Prioritized Disclosure. Self-Conquering Incentives involve using off-path plans to push producers towards full disclosure, disrupting negative scenarios. Prioritized Disclosure attracts higher-quality producers by offering them higher rents. Together, these characteristics minimize strategic uncertainty and maximize revenue for the platform, fostering greater trust and transparency within the platform ecosystem.

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