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Matching Platforms

Masaki Aoyagi and Seung Han Yoo

No 1903, Discussion Paper Series from Institute of Economic Research, Korea University

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.

Keywords: assortative; screening; auction; subscription; revenue maximization. (search for similar items in EconPapers)
JEL-codes: D42 D47 D62 D82 L12 (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-des, nep-gth and nep-mic
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