Managing Congestion in Matching Markets

54 Pages Posted: 23 Apr 2014 Last revised: 12 Jun 2018

See all articles by Nick Arnosti

Nick Arnosti

Columbia Business School - Decisions, Risk, and Operations Division

Ramesh Johari

Stanford University

Yash Kanoria

Columbia Business School - Decision Risk and Operations

Date Written: May 7, 2018

Abstract

Participants in matching markets face search and screening costs which prevent the market from clearing efficiently. We study the magnitude of this inefficiency, and the effects of simple market interventions.

We consider a mean field limit of a stochastic, game theoretic, dynamic model in which “applicants” and “employers” pay costs to search and screen. Importantly, applicants may send applications that are never screened, and employers may screen applicants, only to learn that they have already matched. We prove existence and uniqueness of equilibrium, and characterize welfare for participants on both sides of the market. We also establish that equilibria of our model are approximate equilibria in large finite markets.

We provide two main insights. First, we identify that the welfare of market participants depends crucially on whether the market is *screening-limited* or *application-limited*. In screening-limited markets, application costs are low and there are enough employers that most applicants can match. In this case, employers screen many applicants who turn out to be unavailable, and screening costs fully offset the benefit of matching: employers’ expected welfare is zero, and some employers choose not to participate. In contrast, application-limited markets typically feature low screening costs and a shortage of employers. In such markets, applicants engage in wasteful competition, sending many applications that are never read. Our second contribution is to show that simple interventions – such as limiting the number of applications that an individual can send, or making it more costly to apply – can significantly improve the welfare of agents on one or both sides of the market.

Keywords: Matching, market design, mean field

JEL Classification: D40, J41

Suggested Citation

Arnosti, Nick and Johari, Ramesh and Kanoria, Yash, Managing Congestion in Matching Markets (May 7, 2018). Available at SSRN: https://ssrn.com/abstract=2427960 or http://dx.doi.org/10.2139/ssrn.2427960

Nick Arnosti

Columbia Business School - Decisions, Risk, and Operations Division ( email )

3022 Broadway
New York, NY 10027
United States

Ramesh Johari (Contact Author)

Stanford University ( email )

473 Via Ortega
Stanford, CA 94305-9025
United States

Yash Kanoria

Columbia Business School - Decision Risk and Operations ( email )

New York, NY
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
865
rank
26,164
Abstract Views
5,369
PlumX Metrics
!

Under construction: SSRN citations will be offline until July when we will launch a brand new and improved citations service, check here for more details.

For more information