Search Steering in Two-Sided Platforms

Abstract

We study the incentives from a two-sided platform to segment the market by providing personalized search results. In our environment, a monopolistic platform matches sellers with buyers. Upon being matched, each pair of buyer and seller negotiate prices. If they choose to transact, the platform receives a commission fee proportional to the value of the transaction plus a flat fee per transaction. The platform is assumed to have full information over customers' and sellers' outside options. We derive sufficient conditions under which the platform's optimal matching is suboptimal from the perspective of buyers and sellers.

Keywords: Market Segmentation, Information Design, Two-sided markets

JEL Classification: C78, D47, D44