Pricing mechanisms in the online Peer-to-Peer lending market

We discuss different pricing mechanisms in the online peer-to-peer lending market, including the borrower pricing mechanism (BPM), auction pricing mechanism (APM) and platform pricing mechanism (PPM), and analyse the pricing differences among them. First, different pricing models can be constructed to demonstrate the incentive compatibility of the different pricing mechanisms. We then further describe the equilibrium of the different pricing mechanisms and analyse the action strategies of borrowers and lenders. The results show that the BPM and PPM are incentive-compatible mechanisms as long as the loan is profitable-that is, each lender reports her own real type. However, the APM is not an incentive-compatible mechanism. Further, different types of BPMs or PPMs can be derived, and each lender's best response strategy will vary depending on the types of risk preferences in the different pricing mechanisms. Specifically, when lenders are risk averse, they will choose to bid the first time and exhaust their budget quota; when lenders are risk seeking, they will choose to bid late and exhaust their budget quota. (C) 2017 Elsevier B.V. All rights reserved.