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Search Algorithm and Sales on Online Platforms: Evidence from Food Delivery Platforms

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  • Yangguang Huang

    (Department of Economics, The Hong Kong University of Science and Technology)

Abstract

One prominent feature of online sales is that buyers rely on the search tools offered by platforms to process information when searching for products. We develop a model that captures how the search algorithm affects buyers' search process, which influences the market equilibrium and welfare. The development of online platforms can reduce buyers' search costs and promote competition among sellers, but a platform may design a search algorithm that is too "selective" from the social welfare perspective, which causes consumers to consider fewer options and suppresses competition. By using data from food delivery platforms, we provide empirical evidence that search algorithms deeply affect restaurant revenues. Markets with more chain restaurants with established brands tend to have more concentrated sales. This is partly caused by search algorithms being biased towards large restaurant chains.

Suggested Citation

  • Yangguang Huang, 2021. "Search Algorithm and Sales on Online Platforms: Evidence from Food Delivery Platforms," HKUST CEP Working Papers Series 202101, HKUST Center for Economic Policy.
  • Handle: RePEc:hke:wpaper:wp2021-01
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    More about this item

    Keywords

    online platform; search algorithm; consideration set; food-delivery platform;
    All these keywords.

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts

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