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 is in charge of matching 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. The platform is assumed to have full information over customers' and sellers' outside options. We show that in this environment the platform may have incentives to prioritize finding feasible matches to more expensive products so as to inflate market prices and, thus, the commissions it receives from transactions. By doing this, the platform maximizes the number of transactions, which can generate excess liquidity.

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

JEL Classification: C78, D47, D44