On Service Employers' Hiring Decisions in Online Labor Markets: A Perspective of Price and Quality Discovery

Online labor markets become increasingly important creating jobs for millions of online freelancers around the globe. However, 60% of projects fail to reach to a contract, indicating a waste of time and effort for both buyers and freelancers. Given the fact that a buyer is often uncertain about the price (common value) of a project, this paper empirically examines how this uncertainty on common value-measured as price dispersion--affects buyer's contract decisions and price sensitivity. We find price dispersion has a negative while quality dispersion has a positive effect on buyer's contract decisions. Meanwhile, as price dispersion increases, a buyer becomes less sensitive to prices. The paper contributes to online service market literature by focusing on buyer's uncertainty over common value and proposing the importance of price discovery in buyers' contract decisions. Managerial implications for the platform and freelancers' bidding strategies under common value uncertainty are discussed at end.