Do Online Marketplaces Become More Efficient Over Time?
AbstractAn 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.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by NET Institute in its series Working Papers with number 12-24.
Length: 42 pages
Date of creation: Oct 2012
Date of revision:
Contact details of provider:
Web page: http://www.NETinst.org/
Two-Sided Platforms; Matching; Search; Marketplaces; Frictions; Transaction Costs; Learning; Reputation; Internet Economics;
Find related papers by 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 and Pricing - - - Market Design
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
- D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
- O31 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
- O33 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-10-27 (All new papers)
- NEP-COM-2012-10-27 (Industrial Competition)
- NEP-ICT-2012-10-27 (Information & Communication Technologies)
- NEP-IND-2012-10-27 (Industrial Organization)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Nicolas L. Jacquet & Serene Tan, 2007.
"On the Segmentation of Markets,"
18-2007, Singapore Management University, School of Economics.
- Hector Chade & Lones Smith, 2005.
NajEcon Working Paper Reviews
- lones smith & hector chade, 2004. "simultaneous search," Econometric Society 2004 North American Summer Meetings 64, Econometric Society.
- Hector Chade & Lones Smith, . "Simultaneous Search," Working Papers 2168591, Department of Economics, W. P. Carey School of Business, Arizona State University.
- Hector Chade & Lones Smith, 2006. "Simultaneous Search," Cowles Foundation Discussion Papers 1556, Cowles Foundation for Research in Economics, Yale University.
- Lones Smith & Hector Chade, 2004. "Simultaneous Search," 2004 Meeting Papers 25, Society for Economic Dynamics.
- Albrecht, James W. & Gautier, Pieter A. & Vroman, Susan B., 2003.
"Matching with multiple applications,"
Elsevier, vol. 78(1), pages 67-70, January.
- E. Glen Weyl, 2010. "A Price Theory of Multi-sided Platforms," American Economic Review, American Economic Association, vol. 100(4), pages 1642-72, September.
- Jean-Charles Rochet & Jean Triole, 2002.
"Platform Competition in Two Sided Markets,"
FMG Discussion Papers
dp409, Financial Markets Group.
- Morgan, Peter & Manning, Richard, 1985. "Optimal Search," Econometrica, Econometric Society, vol. 53(4), pages 923-44, July.
- C. Lanier Benkard, 2000. "Learning and Forgetting: The Dynamics of Aircraft Production," American Economic Review, American Economic Association, vol. 90(4), pages 1034-1054, September.
- Matthew O. Jackson & Tomas Rodriguez-Barraquer & Xu Tan, 2012. "Social Capital and Social Quilts: Network Patterns of Favor Exchange," American Economic Review, American Economic Association, vol. 102(5), pages 1857-97, August.
- Luis Rayo & Ilya Segal, 2010. "Optimal Information Disclosure," Journal of Political Economy, University of Chicago Press, vol. 118(5), pages 949 - 987.
- Charness, Gary & Brandts, Jordi & Ellman, Matthew, 2012. "Letâ€™s talk: How communication affects contract design," University of California at Santa Barbara, Economics Working Paper Series qt6z24s6rv, Department of Economics, UC Santa Barbara.
- Albrecht, James & Tan, Serene & Gautier, Pieter & Vroman, Susan, 2004. "Matching with multiple applications revisited," Economics Letters, Elsevier, vol. 84(3), pages 311-314, September.
- Marc Rysman, 2004. "Competition Between Networks: A�Study of the Market for Yellow�Pages," Review of Economic Studies, Wiley Blackwell, vol. 71(2), pages 483-512, 04.
- James Albrecht, Pieter Gautier, & Susan Vroman, 2003. "Matching with Multiple Applications: The Limiting Case," Working Papers gueconwpa~03-03-25, Georgetown University, Department of Economics.
- Marc Rysman, 2004. "Competition Between Networks: A Study of the Market for Yellow Pages," Review of Economic Studies, Oxford University Press, vol. 71(2), pages 483-512.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Nicholas Economides).
If references are entirely missing, you can add them using this form.