Buyer Uncertainty About Seller Capacity: Causes, Consequences, and a Partial Solution

John J. Horton ()
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John J. Horton: Department of Information, Operations, and Management Sciences, Leonard N. Stern School of Business, New York University, New York, New York 10012

Management Science, 2019, vol. 65, issue 8, 3518-3540

Abstract: Employers in an online labor market often pursue workers with little capacity to take on more work. The pursuit of low-capacity workers is consequential, as these workers are more likely to reject employer inquires, causing a reduction in the probability that a job opening is ultimately filled. In an attempt to shift more employer attention to workers with greater capacity, the market-designing platform examined in this paper introduced a new signaling feature into the market. It was effective, in that when a worker signaled having high capacity, he or she received more invitations from employers, rejected a smaller fraction of those invitations, quoted lower prices to do the work, and was more likely to be hired. A back-of-the-envelope calculation suggests the signaling feature alone could increase market surplus by as much as 6%, both by increasing the number of matches formed and by helping to allocate projects to workers with lower costs.

Keywords: economics; behavior and behavioral decision making; IT policy and management; electronic commerce; electronic markets and auctions (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (27)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:65:y:2019:i:8:p:3518-3540

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