The Timing of Pricing: A Theory and Experiment on Freelance Co-Creation

Abstract

On freelance platforms, where value is co-created through the joint effort of freelancers and customers, contract design plays a central managerial role. A key strategic choice concerns price timing: whether prices are set before collaboration begins (early pricing) or after the co-creation process is completed (late pricing). We develop a game-theoretic model comparing these contractual regimes. Under rational expectations, early pricing functions as a commitment device that coordinates mutual high effort, leading to superior product quality and welfare relative to late pricing. We test these predictions in a controlled laboratory experiment. Consistent with theory, early pricing leads freelancers to charge higher prices and earn greater profits than under late pricing. However, contrary to theoretical predictions, early pricing does not increase effort by either party and does not improve product quality or overall welfare. Instead, surplus shifts from customers to freelancers. We interpret this divergence as evidence of a behavioral failure of the commitment mechanism: Freelancers use early prices to signal quality but do not follow through with costly effort. Our findings carry important managerial implications for gig economy platforms. Without complementary reputation or monitoring systems, fixed-price contracts may enable opportunistic behavior rather than support cooperative value creation.