Auction vs. Posted Price: Market Mechanism, Lender Behaviors, and Transaction Outcomes in Online Crowdfunding
We study the effect of different market mechanisms, specifically auctions and postedprices, on participant behaviors and transaction outcomes in an online personal loan market. We develop a game theoretic model to generate empirically testable predictions, then exploit a regime change on a peer to peer lending site, Prosper.com, to test them. We find that under posted prices, loans are funded with higher probability, but only at higher initial and contract interest rates, and are more likely to default. While market based auctions may be slow in discovering the correct price, "expert" based posted price selling may yield unintended, negative welfare consequences.