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Matching & Information Provision by One-Sided and Two-Sided Platforms

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    Abstract

    This paper studies a "market creating" firm (platform) that offers a matching environment by charging an access fee to a population of high and low type users who wish to form a match. We focus on an environment where users only observe a signal of their randomly assigned partner's type and where the informativeness of the signal is controlled by the firm. We study how both tools, access fee and signal informativeness, can be used to screen particular segments of the population. We finish by characterizing the set of optimal menus. The paper proposes three results. We show that information provision has a screening role when network effects are heterogeneous because a platform cannot induce every level of participation using only the access fee. Secondly, any platform will optimally offer a menu such that only high types participate, or where every user participates. In the former the signal is perfectly informative; in the latter it is partially informative. Lastly, the profit maximizing firm will over-provide information in relation to the surplus maximizing firm, and the higher the heterogeneity in the population, the higher the chance of the optimal menu excluding low type users.

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    File URL: http://www.netinst.org/Canon_11_20.pdf
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    Bibliographic Info

    Paper provided by NET Institute in its series Working Papers with number 11-20.

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    Length: 58 pages
    Date of creation: Sep 2011
    Date of revision: Oct 2011
    Handle: RePEc:net:wpaper:1120

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    Web page: http://www.NETinst.org/

    Related research

    Keywords: Pricing; Market Design; Matching; Information Provision; Heterogeneous Network Effects;

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    References

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    1. Juan-José Ganuza & José S. Penalva Zuasti, 2005. "On Information And Competition In Private Value Auctions," Working Papers wp2005_0503, CEMFI.
    2. Poeschel, Friedrich, 2012. "Assortative matching through signals," IAB Discussion Paper 201215, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
    3. Alp E. Atakan, 2010. "Efficient Dynamic Matching with Costly Search," Koç University-TUSIAD Economic Research Forum Working Papers 1030, Koc University-TUSIAD Economic Research Forum.
    4. Ettore Damiano & Hao Li, 2007. "Price discrimination and efficient matching," Economic Theory, Springer, vol. 30(2), pages 243-263, February.
    5. Andre Veiga & E. Glen Weyl, 2011. "Multidimensional Heterogeneity and Platform Design," Working Papers 11-33, NET Institute, revised Nov 2011.
    6. Juan José Ganuza & José S. Penalva, 2006. "On information and competition in private value auctions," Economics Working Papers 937, Department of Economics and Business, Universitat Pompeu Fabra, revised Jul 2006.
    7. Alp E. Atakan, 2006. "Assortative Matching with Explicit Search Costs," Econometrica, Econometric Society, vol. 74(3), pages 667-680, 05.
    8. Andrei Hagiu & Bruno Jullien, 2011. "Why do intermediaries divert search?," RAND Journal of Economics, RAND Corporation, vol. 42(2), pages 337-362, 06.
    9. David P. Myatt & Justin P. Johnson, 2004. "On the Simple Economics of Advertising, Marketing, and Product Design," Economics Series Working Papers 185, University of Oxford, Department of Economics.
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