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Matching & Information Provision by One-Sided and Two-Sided Platforms

This paper studies a "market creating" firm (platform) that offers a matching environment by charging an access fee to a population of high and low type users who wish to form a match. We focus on an environment where users only observe a signal of their randomly assigned partner's type and where the informativeness of the signal is controlled by the firm. We study how both tools, access fee and signal informativeness, can be used to screen particular segments of the population. We finish by characterizing the set of optimal menus. The paper proposes three results. We show that information provision has a screening role when network effects are heterogeneous because a platform cannot induce every level of participation using only the access fee. Secondly, any platform will optimally offer a menu such that only high types participate, or where every user participates. In the former the signal is perfectly informative; in the latter it is partially informative. Lastly, the profit maximizing firm will over-provide information in relation to the surplus maximizing firm, and the higher the heterogeneity in the population, the higher the chance of the optimal menu excluding low type users.

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File URL: http://www.netinst.org/Canon_11_20.pdf
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Paper provided by NET Institute in its series Working Papers with number 11-20.

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Length: 58 pages
Date of creation: Sep 2011
Date of revision: Oct 2011
Handle: RePEc:net:wpaper:1120
Contact details of provider: Web page: http://www.NETinst.org/

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  1. Andrei Hagiu & Bruno Jullien, 2011. "Why do intermediaries divert search?," RAND Journal of Economics, RAND Corporation, vol. 42(2), pages 337-362, 06.
  2. Ettore Damiano & Hao Li, 2007. "Price discrimination and efficient matching," Economic Theory, Springer, vol. 30(2), pages 243-263, February.
  3. Poeschel, Friedrich, 2012. "Assortative matching through signals," Annual Conference 2012 (Goettingen): New Approaches and Challenges for the Labor Market of the 21st Century 62061, Verein für Socialpolitik / German Economic Association.
  4. Alp E. Atakan, 2010. "Efficient Dynamic Matching with Costly Search," Koç University-TUSIAD Economic Research Forum Working Papers 1030, Koc University-TUSIAD Economic Research Forum.
  5. David P. Myatt & Justin P. Johnson, 2004. "On the Simple Economics of Advertising, Marketing, and Product Design," Economics Series Working Papers 185, University of Oxford, Department of Economics.
  6. White, Alexander, 2013. "Search engines: Left side quality versus right side profits," International Journal of Industrial Organization, Elsevier, vol. 31(6), pages 690-701.
  7. Juan-José Ganuza & José S. Penalva Zuasti, 2005. "On Information And Competition In Private Value Auctions," Working Papers wp2005_0503, CEMFI.
  8. Alp Atakan, 2005. "Assortative Matching with Explicit Search Costs," 2005 Meeting Papers 218, Society for Economic Dynamics.
  9. Andre Veiga & E. Glen Weyl, 2011. "Multidimensional Heterogeneity and Platform Design," Working Papers 11-33, NET Institute, revised Nov 2011.
  10. Chade, Hector, 2006. "Matching with noise and the acceptance curse," Journal of Economic Theory, Elsevier, vol. 129(1), pages 81-113, July.
  11. Juan José Ganuza & José S. Penalva, 2006. "On information and competition in private value auctions," Economics Working Papers 937, Department of Economics and Business, Universitat Pompeu Fabra, revised Jul 2006.
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