Efficient Matchmaking in Assignment Games with Application to Online Platforms

Abstract

Online platforms that match customers with service providers utilize a wide variety of designs: some implement a searchable directory of one side of the market (i.e., Airbnb, Google Local Services); some allow both sides of the market to search and initiate contact (i.e., Upwork, Care.com); others implement centralized matching (i.e., Uber, Lyft, Amazon Home Services). This paper provides prescriptive guidelines on the optimal platform design for any given market, and sheds light on why matchmaking seems to be harder in certain industries than in others. The insights are derived from analyzing the assignment game of Shapley and Shubik (1971) using concepts from communication complexity theory (Kushilevitz and Nisan 2006).

Keywords: market design, online platforms, two-sided matching, communication complexity

JEL Classification: D47, D83, C78