Dynamic Type Matching

68 Pages Posted: 11 Apr 2015 Last revised: 11 Apr 2019

See all articles by Ming Hu

Ming Hu

University of Toronto - Rotman School of Management

Yun Zhou

McMaster University - Michael G. DeGroote School of Business

Date Written: October 21, 2018

Abstract

We consider an intermediary's problem of dynamically matching demand and supply of heterogeneous types in a periodic-review fashion. More specifically, there are two disjoint sets of demand and supply types, and a reward associated with each possible matching of a demand type and a supply type. In each period, demand and supply of various types arrive in random quantities. The platform's problem is to decide on the optimal matching policy to maximize the total discounted rewards minus costs, given that unmatched demand and supply will incur waiting or holding costs, and will be carried over to the next period (with abandonment). For this dynamic matching problem, we provide sufficient conditions on matching rewards such that the optimal matching policy follows a priority hierarchy among possible matching pairs. We show those conditions are satisfied by vertically and unidirectionally horizontally differentiated types, for which quality and distance determine priority, respectively. As a result of the priority property, the optimal matching policy boils down to a match-down-to threshold structure when considering a specific pair of demand and supply types in the priority hierarchy.

Keywords: dynamic matching, two-sided market, sharing economy, match-down-to policy, top-down matching, horizontally differentiated types, vertically differentiated types

JEL Classification: C61, D8, D9, L8, L9, O31, R4

Suggested Citation

Hu, Ming and Zhou, Yun, Dynamic Type Matching (October 21, 2018). Rotman School of Management Working Paper No. 2592622. Available at SSRN: https://ssrn.com/abstract=2592622 or http://dx.doi.org/10.2139/ssrn.2592622

Ming Hu (Contact Author)

University of Toronto - Rotman School of Management ( email )

105 St. George st
Toronto, ON M5S 3E6
Canada
416-946-5207 (Phone)

HOME PAGE: http://ming.hu

Yun Zhou

McMaster University - Michael G. DeGroote School of Business ( email )

1280 Main Street West
Hamilton, Ontario L8S 4M4
Canada

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