Facilitating the Search for Partners on Matching Platforms
85 Pages Posted: 22 Jul 2017 Last revised: 13 Sep 2018
Date Written: July 5, 2017
Two-sided matching platforms can control and optimize over many aspects of the search for partners. To understand how matching platforms should be designed, we introduce a dynamic two-sided search model with strategic agents who must bear a cost to discover their value for each potential partner. We ﬁnd that, in many settings, the platform can mitigate wasted search eﬀort by imposing suitable restrictions on agents. Surprisingly, restrictions can improve social welfare even when screening costs are small and agents on each side are ex-ante homogeneous. In unbalanced markets, the platform should force the short side of the market to initiate contact with potential partners, by disallowing the long side from doing so. This allows the agents on the long side to exercise more choice in equilibrium. When agents are vertically diﬀerentiated, the platform can signiﬁcantly improve welfare even in the limit of vanishing screening costs by forcing the shorter side of the market to propose and by hiding information about the quality of potential partners. Furthermore, a Pareto improvement in welfare is possible in this limit.
Keywords: Matching Markets, Market Design, Search Frictions, Stationary Equilibrium, Sharing Economy, Platforms
JEL Classification: D47, D83, L86
Suggested Citation: Suggested Citation