Effects of Market Size and Competition in Two-Sided Markets: Evidence from Online Dating

Abstract

A common finding in the theoretical matching literature is that a greater number of potential matches improves matching outcomes, whereas more competition worsens matching outcomes. However, it is unknown whether this finding holds empirically in decentralized markets, where agents can endogenously adjust their search behavior in response to changes in competition and number of potential matches (market size). This paper measures the effects of market size and competition size on search behavior and matching decisions using a large-scale randomized field experiment with an online dating application. The experiment provides a user-level information treatment: the number of men and women in the user's market. I find that on average, an increase in market size deters users from participating in the market. Conditional on participating, market and competition size influence matching decisions. An increase in market size causes users to become more selective, whereas competition causes users to become less selective. I discuss the implications of these endogenous changes in search behavior and selectivity on matching outcomes and explore potential mechanisms that can explain these empirical findings.

Keywords: digital markets, two-sided matching, platform design, online dating