Buyer Uncertainty About Seller Capacity: Causes, Consequences, and a Partial Solution

54 Pages Posted: 23 Apr 2018

See all articles by John J. Horton

John J. Horton

New York University (NYU) - Department of Information, Operations, and Management Sciences

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Date Written: April 3, 2018

Abstract

Employers in an online labor market often pursue workers with little capacity to take on more work. The pursuit of low-capacity workers is consequential, as these workers are more likely to reject employer inquires, causing a reduction in the probability a job opening is ultimately filled. In an attempt to shift more employer attention to workers with greater capacity, the market-designing platform introduced a new signaling feature into the market. It was effective, in that when a worker signaled having high capacity, he or she received more invitations from employers, rejected a smaller fraction of those invitations, quoted a lower price to do the work, and was more likely to be hired. A back-of-the-envelope calculation suggests the signaling feature alone could increase market surplus by as much as 6%, both by increasing the number of matches formed and by helping to allocate projects to workers with lower costs.

Suggested Citation

Horton, John J., Buyer Uncertainty About Seller Capacity: Causes, Consequences, and a Partial Solution (April 3, 2018). Available at SSRN: https://ssrn.com/abstract=3155526 or http://dx.doi.org/10.2139/ssrn.3155526

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