UCL School of Management is delighted to welcome Guofang Huang, CMU, to host a research seminar discussing ‘Selling-mechanism design for peer-to-peer online lending platforms: posted price vs.multiunit uniform-price open auctions.’

Abstract

Prosper.com, a leading peer-to-peer (p2p) online lending platform, switched its selling mechanism from multiunit uniform-price descending auctions to open fixed rates at the end of 2010. We exploit the policy change to study the relative transaction efficiency of the two popular selling mechanisms in general for p2p lending and other related financial products. Our analysis of Prosper’s detailed listing and bid data shows that there are 1) a significant increase in its transaction efficiency associated with the policy switch; 2) strong evidence of lenders herding and strategically delaying bidding in the auctions, and, to a significantly lesser extent, under fixed rates; and 3) a U- shaped bimodal distribution of the amount of money raised per listing in Prosper’s auctions but not with its fixed rates. Analysis of game-theoretic models of the two selling mechanisms shows that the interplay between lenders’ herding and strategic timing of entry in the two dynamic selling mechanisms can explain the relatively higher transaction efficiency under open fixed rates, as well as the other documented patterns in bidding and funding outcomes. Implications for designing selling mechanisms for p2p lending and other related financial products are discussed.