Search and Resale Frictions in a Two-Sided Online Platform: A Case of Multi-Use Assets
45 Pages Posted: 27 Oct 2016 Last revised: 5 Mar 2018
Date Written: October 6, 2017
How large are two-sided transaction costs in online platform trades, and who are the major beneficiaries of friction cost reductions? By using a dataset of a multi-use train ticket resale market, we analyze the welfare loss structure caused by 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 result shows that individual-level welfare losses, which could be considered as 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: Two-Sided Online Platform, Resalable Good, Search Cost, Resale Cost, Buyer-Seller Matching Friction, Resale-Aimed Purchase
JEL Classification: L12, L81
Suggested Citation: Suggested Citation