Trust and Fairness: Contracting on a Share-based Platform

Trust and fairness in information and revenue sharing are critical to the development of the sharing economy. We study a contracting problem between a platform and its content supplier, in which the platform can offer to manage the content for the supplier and share revenue afterward (contract A), or let the supplier manage his content and report trade while charging him a commission fee (contract B). The platform decides the revenue-sharing ratio and how much revenue information to disclose. The supplier evaluates a contract based on utility maximization, considering his trust in the platform's information and his fairness concern over the revenue-sharing ratio. By developing a browser contracting game and letting 71 management-major students play as the platform, we first demonstrate the practical potential of our model. Then using a game-theoretical model, we derive the optimal contracting mechanism in different scenarios. Our results first show that the supplier's trust does not always affect the platform's optimal decisions. Second, the optimal revenue-sharing ratio of contract A increases either with the element of trust or with the element of fairness, but never both. Third, although honesty does not always pay for the supplier under contract B, dishonesty always costs. We also find that the supplier who wants to be treated fairly will cheat more and there is a virtuous circle between the commission fee and the supplier's cheating behavior. Based on our results, we provide practical guidelines to share-based platforms on how to consider suppliers' trust and fairness concern in contracting.