Search and Resale Frictions in a Two-Sided Online Platform: A Case of Multi-Use Assets
25 Pages Posted: 27 Oct 2016 Last revised: 23 Jun 2019
Date Written: April 6, 2019
How large are two-sided transaction costs in online platform trades, and who are the major beneficiaries of friction cost reductions? Using a dataset of a multi-use train ticket resale market, we analyze the welfare structure with buyer-seller matching frictions on an online platform. Our model shows that competitive online resale market prices work as a conductor of transaction cost externalities, clarifying what types of buyers bear what friction costs. The estimation results show that individual-level welfare losses, which could be considered an online resale market dead-weight loss, are non-negligibly large and heterogeneous across buyers, ranging from 3% to 21% of the new good price. Welfare losses are particularly disadvantageous to users who demand small degrees of usage, as they are more likely to be excluded from trading opportunities. Our model also suggests that, when competitive resale markets experience friction cost reductions, welfare gains are larger among small degree users of resalable goods, providing an explanation for the recent expansion of high-turnover online trades.
Keywords: Online platform, Two-sided trade, Resalable good, Search cost, Resale cost, Resale market friction
JEL Classification: L12, L81
Suggested Citation: Suggested Citation