An Empirical Investigation on Provider Pricing in Online Crowdsourcing Markets for IT Services

Pricing in online markets has been of much interest to academics and practitioners, particularly for unique IT services. In this paper, we theorize and empirically examine three primary factors that affect provider pricing of outsourced IT services: production cost, competitive dynamics (accounting for competitors’ attributes) and frictional cost (accounting for buyers’ information). We test the respective role of each of these three complementary pricing strategies with archival data from a leading global online market that specializes in the outsourcing of IT services. The results from our econometric analyses confirm that, besides production cost, service providers also account for the information signals about competing providers’ quality when pricing their services, reflecting the rule of market competition and dynamics. Furthermore, service providers also adjust their prices for different service outsourcers with varying perceived frictional costs, which indicates, although online markets are vaunted to reduce transaction costs that outsourcers would otherwise incur offline, they creates new types of frictional costs between providers and outsourcers.