Facilitating the Search for Partners on Matching Platforms

85 Pages Posted: 22 Jul 2017 Last revised: 13 Sep 2018

Yash Kanoria

Columbia Business School - Decision Risk and Operations

Daniela Saban

Stanford Graduate School of Business

Date Written: July 5, 2017

Abstract

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

Kanoria, Yash and Saban, Daniela, Facilitating the Search for Partners on Matching Platforms (July 5, 2017). Stanford University Graduate School of Business Research Paper No. 17-53; Columbia Business School Research Paper No. 17-74. Available at SSRN: https://ssrn.com/abstract=3004814 or http://dx.doi.org/10.2139/ssrn.3004814

Yash Kanoria (Contact Author)

Columbia Business School - Decision Risk and Operations ( email )

New York, NY
United States

Daniela Saban

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

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