Higher Market Thickness Reduces Matching Rate in Online Platforms: Evidence from a Quasi-Experiment

38 Pages Posted: 27 Sep 2017 Last revised: 25 Oct 2018

See all articles by Jun Li

Jun Li

University of Michigan, Stephen M. Ross School of Business

Serguei Netessine

The Wharton School, University of Pennsylvania

Date Written: August 21, 2018

Abstract

Market thickness is a key parameter that can make or break a platform's business model. Thicker markets can offer more opportunities for participants to meet and higher chances that a potential match exists. However, they can also be vulnerable to potential search frictions. In this paper, using data from an online peer-to-peer holiday property-rental platform, we aim to identify and measure the causal impact of market thickness on matching rates. In particular, we exploit an exogenous shock to market size caused by a one-time migration of listings from other platforms, which gives rise to a quasi-experimental design. We find that increased market thickness actually leads to lower matching rates. Keeping search technology and other factors constant, doubling market size leads to a 15.4% reduction in traveler confirmation rate and 15.9% reduction in host occupancy rate. As a result, the platform lost 5.6% of potential matches because of the increased market size. We attribute the effect to increased search friction: travelers' search intensity increases by 18.3% when market size doubles. This effect is especially prominent when the matching needs to take place within a limited time. Our results offer insights for future empirical and theoretical research on matching markets. They also highlight the importance for platform owners to watch out for increased search frictions as markets grow and to invest in search technologies to facilitate more efficient search.

Keywords: Matching Markets, Market Thickness, Matching Supply and Demand, Quasi-Experiment, Difference-In-Differences

Suggested Citation

Li, Jun and Netessine, Serguei, Higher Market Thickness Reduces Matching Rate in Online Platforms: Evidence from a Quasi-Experiment (August 21, 2018). Ross School of Business Paper. Available at SSRN: https://ssrn.com/abstract=3041960 or http://dx.doi.org/10.2139/ssrn.3041960

Jun Li (Contact Author)

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States

Serguei Netessine

The Wharton School, University of Pennsylvania ( email )

3730 Walnut Street
Philadelphia, PA 19104-6367
United States
(215) 573 3571 (Phone)

HOME PAGE: http://www.netessine.com

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