Evaluating the Efficacy of Platform-Imposed Application Costs for Managing Congestion in Online Matching Markets

54 Pages Posted: 14 Dec 2021

See all articles by Jingbo Hou

Jingbo Hou

Arizona State University (ASU)

Ni Huang

Miami Herbert Business School, University of Miami

Gordon Burtch

Boston University - Questrom School of Business

Yili Hong

University of Miami Herbert Business School

Pei-Yu Chen

Arizona State University (ASU) - Department of Information Systems

Date Written: October 20, 2021

Abstract

One key objective of matching platforms is to facilitate market clearing. When the supply and demand for services are unbalanced, congestion issues arise. Specifically, when workers can apply for unlimited employers/jobs with negligible application costs, employers may face excessive applications and difficulty processing the proposals of lower quality. Prior work has argued (theoretically) that a platform operator can potentiall address this imbalance by imposing application costs on workers, to screen out some low-skilled workers. This study empirically evaluates the efficacy of this intervention, an artificially introduced job application fee for workers, by leveraging data from a prominent online labor market in a quasi-experiment setting. We provide field evidence that application fees successfully improve matching outcomes. First, the application fee disproportionately reduces the number of bids submitted by low-skilled workers. Second, the application fee increases workers’ selectivity effort and differentiating effort, to signal their job fit and ability to employers. However, our results also document several unintended consequences induced by application fees, which are usually ignored in previous literature. First, the application fee reduces workers’ skill expansion, as workers become less likely to bid on jobs involving new or less familiar skills. Second, the application fee appears to worsen the cold-start problem– new workers without salient reputations have a harder time attracting employers. Third, the application fee increases the chosen workers’ unavailability, indicated by their increased chance of rejecting an offer, which is different from the previous assumptions. We discuss the implications of our findings for the design of matching platforms.

Keywords: matching platforms, frivolous bidding, market congestion, application costs, quasi-experiment

Suggested Citation

Hou, Jingbo and Huang, Ni and Burtch, Gordon and Hong, Yili and Chen, Pei-Yu, Evaluating the Efficacy of Platform-Imposed Application Costs for Managing Congestion in Online Matching Markets (October 20, 2021). Available at SSRN: https://ssrn.com/abstract=3946059 or http://dx.doi.org/10.2139/ssrn.3946059

Jingbo Hou

Arizona State University (ASU) ( email )

Farmer Building 440G PO Box 872011
Tempe, AZ 85287
United States

Ni Huang

Miami Herbert Business School, University of Miami ( email )

United States

HOME PAGE: http://nihuang.me/

Gordon Burtch

Boston University - Questrom School of Business ( email )

595 Commonwealth Avenue
Boston, MA 02215
United States

Yili Hong (Contact Author)

University of Miami Herbert Business School ( email )

P.O. Box 248126
Florida
Coral Gables, FL 33124
United States

Pei-Yu Chen

Arizona State University (ASU) - Department of Information Systems ( email )

Tempe, AZ
United States

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