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Do Online Marketplaces Become More Efficient Over Time?

Author

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  • Andrey Fradkin

    (Department of Economics, Stanford University)

Abstract

An increasing proportion of transactions in two-sided markets are being mediated by online platforms. Presumably, agents choose to use online platforms because they have a lower transaction cost technology compared to alternatives. I use data from a growing online platform that matches travelers and hosts to study matching and transaction costs on online platforms. I show that the matching probability for guests has increased by 18% over a span of two years on the platform. I then show that the increase in efficiency holds even when controlling for the search intensity of guests, the change in the composition of transactions and aggregate market conditions at the time of search I demonstrate that guests are elastic with respect to the time it takes to make a transaction. I then investigate one potential reason for why guests are more successful over time: a decrease in the transaction costs required to book. I show that the time to book and the amount of communication required to book on the platform are falling over time. I then consider three possible explanation hypotheses for the reduction in required transaction costs: learning, reputation building and platform policy. I show that all three are likely important for explain the increased efficiency over time.

Suggested Citation

  • Andrey Fradkin, 2012. "Do Online Marketplaces Become More Efficient Over Time?," Working Papers 12-24, NET Institute.
    • Handle: RePEc:net:wpaper:1224
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    References listed on IDEAS

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    Cited by:

    1. Apostolos Filippas & John J. Horton & Richard J. Zeckhauser, 2020. "Owning, Using, and Renting: Some Simple Economics of the “Sharing Economy”," Management Science, INFORMS, vol. 66(9), pages 4152-4172, September.

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    More about this item

    Keywords

    Two-Sided Platforms; Matching; Search; Marketplaces; Frictions; Transaction Costs; Learning; Reputation; Internet Economics;
    All these keywords.

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
    • J6 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers
    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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