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Do Online Marketplaces Become More Efficient Over Time?

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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.

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Bibliographic Info

Paper provided by NET Institute in its series Working Papers with number 12-24.

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Length: 42 pages
Date of creation: Oct 2012
Date of revision:
Handle: RePEc:net:wpaper:1224

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

Related research

Keywords: Two-Sided Platforms; Matching; Search; Marketplaces; Frictions; Transaction Costs; Learning; Reputation; Internet Economics;

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References

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  1. Nicolas L. Jacquet & Serene Tan, 2007. "On the Segmentation of Markets," Working Papers 18-2007, Singapore Management University, School of Economics.
  2. Hector Chade & Lones Smith, 2005. "Simultaneous Search," NajEcon Working Paper Reviews 172782000000000033, www.najecon.org.
  3. 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.
  4. 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.
  5. 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.
  6. Morgan, Peter & Manning, Richard, 1985. "Optimal Search," Econometrica, Econometric Society, vol. 53(4), pages 923-44, July.
  7. James W. Albrecht & Pieter A. Gautier & Susan B. Vroman, 2001. "Matching with Multiple Applications," Tinbergen Institute Discussion Papers 01-080/3, Tinbergen Institute.
  8. repec:rje:randje:v:37:y:2006:3:p:645-667 is not listed on IDEAS
  9. E. Glen Weyl, 2010. "A Price Theory of Multi-sided Platforms," American Economic Review, American Economic Association, vol. 100(4), pages 1642-72, September.
  10. Jean-Charles Rochet & Jean Tirole, 2003. "Platform Competition in Two-Sided Markets," Journal of the European Economic Association, MIT Press, vol. 1(4), pages 990-1029, 06.
  11. 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.
  12. Albrecht, James & Tan, Serene & Gautier, Pieter & Vroman, Susan, 2004. "Matching with multiple applications revisited," Economics Letters, Elsevier, vol. 84(3), pages 311-314, September.
  13. Charness, Gary & Brandts, Jordi & Ellman, Matthew, 2012. "Let’s talk: How communication affects contract design," University of California at Santa Barbara, Economics Working Paper Series qt6z24s6rv, Department of Economics, UC Santa Barbara.
  14. 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.
  15. Luis Rayo & Ilya Segal, 2010. "Optimal Information Disclosure," Journal of Political Economy, University of Chicago Press, vol. 118(5), pages 949 - 987.
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