Who Benefits from Improved Search in Platform Markets?

27 Pages Posted: 12 Apr 2013

See all articles by Gregory Lewis

Gregory Lewis

Harvard University; National Bureau of Economic Research (NBER)

Albert Wang

Harvard University

Date Written: April 8, 2013

Abstract

Online platforms invest large sums in their search technology. Motivated by this observation, we investigate how lowering search costs affects the welfare of market participants, in a model where buyers with horizontally differentiated tastes search and then compete for differentiated goods in an auction. We identify a "matching effect", whereby lower search costs lead to better matches; and a "segmentation effect" whereby lower search costs endogenously shift market participation in favor of some goods and against others. We prove that there is a unique equilibrium, and demonstrate that the decentralized market achieves the social planner's solution. Decreasing search costs thus improves joint welfare; and yet surprisingly it is possible for segmentation effects to dominate matching effects, and joint seller revenue to fall.

Keywords: Platforms, Auctions, Search

JEL Classification: D44, D83, L00

Suggested Citation

Lewis, Gregory and Wang, Albert, Who Benefits from Improved Search in Platform Markets? (April 8, 2013). Available at SSRN: https://ssrn.com/abstract=2249816 or http://dx.doi.org/10.2139/ssrn.2249816

Gregory Lewis (Contact Author)

Harvard University ( email )

Littauer Center
Cambridge, MA 02138
United States
617-496-1526 (Phone)

HOME PAGE: http://www.economics.harvard.edu/faculty/lewis

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Albert Wang

Harvard University ( email )

1875 Cambridge Street
Cambridge, MA 02138
United States

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