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Matching Platforms

Author

Listed:
  • Masaki Aoyagi

    (ISER, Osaka University, Osaka, Japan)

  • Seung Han Yoo

    (Department of Economics, Korea University, Seoul, Republic of Korea)

Abstract

A platform offers sellers and buyers trading opportunities by creating one-to-one matches between them. A matching mechanism consists of a menu of subscription plans for each side and specifies fees and the probabilities with which subscribers of each plan are matched with subscribers of different plans on the other side. We characterize optimal matching mechanisms which maximize the subscription revenue under the incentive compatibility conditions. When the agents are strategic in their interactions with their matched partners, we show that the optimal matching rule may not equal socially efficient positive assortative matching (PAM) but instead focus on the extraction of the agents¡¯ informational rents. We then examine the efficiency of the optimal mechanism in two alternative scenarios in which the platform exercises stronger control over the interactions between the matched agents. When the subscription fee can be conditioned on the success of a transaction, we show that the optimal mechanism is efficient with PAM restored as the optimal matching rule. However, when the platform has full control over the allocation and price of the good, we show that the optimal mechanism employs PAM but may create efficiency distortions by blocking some efficient transactions.

Suggested Citation

  • Masaki Aoyagi & Seung Han Yoo, 2019. "Matching Platforms," Discussion Paper Series 1903, Institute of Economic Research, Korea University.
    • Handle: RePEc:iek:wpaper:1903
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    File URL: http://econ.korea.ac.kr/~ri/WorkingPapers/w1903.pdf
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    References listed on IDEAS

    as
    1. Robert Shimer & Lones Smith, 2000. "Assortative Matching and Search," Econometrica, Econometric Society, vol. 68(2), pages 343-370, March.
    2. Patrick Legros & Andrew F. Newman, 2007. "Beauty Is a Beast, Frog Is a Prince: Assortative Matching with Nontransferabilities," Econometrica, Econometric Society, vol. 75(4), pages 1073-1102, July.
    3. Patrick Legros & Andrew Newman, 2007. "Beauty is a beast, frog is a prince :assortative matching in a nontransferable world," ULB Institutional Repository 2013/7022, ULB -- Universite Libre de Bruxelles.
    4. Becker, Gary S, 1973. "A Theory of Marriage: Part I," Journal of Political Economy, University of Chicago Press, vol. 81(4), pages 813-846, July-Aug..
    5. Wataru Tamura, 2016. "Auction Platform Design and the Linkage Principle," Journal of Industrial Economics, Wiley Blackwell, vol. 64(2), pages 201-225, June.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    assortative; screening; auction; subscription; revenue maximization.;
    All these keywords.

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies

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