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Do Online Marketplaces Become More Efficient Over Time?

Andrey Fradkin ()
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Andrey Fradkin: Department of Economics, Stanford University

No 12-24, Working Papers from NET Institute

Abstract: An increasing proportion of transactions in two-sided markets are being mediated by online platforms. Presumably, agents choose to use online platforms because they have a lower transaction cost technology compared to alternatives. I use data from a growing online platform that matches travelers and hosts to study matching and transaction costs on online platforms. I show that the matching probability for guests has increased by 18% over a span of two years on the platform. I then show that the increase in efficiency holds even when controlling for the search intensity of guests, the change in the composition of transactions and aggregate market conditions at the time of search I demonstrate that guests are elastic with respect to the time it takes to make a transaction. I then investigate one potential reason for why guests are more successful over time: a decrease in the transaction costs required to book. I show that the time to book and the amount of communication required to book on the platform are falling over time. I then consider three possible explanation hypotheses for the reduction in required transaction costs: learning, reputation building and platform policy. I show that all three are likely important for explain the increased efficiency over time.

Keywords: Two-Sided Platforms; Matching; Search; Marketplaces; Frictions; Transaction Costs; Learning; Reputation; Internet Economics (search for similar items in EconPapers)
JEL-codes: D23 D47 D82 D83 J6 L1 L2 O31 O33 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2012-10
New Economics Papers: this item is included in nep-com, nep-ict and nep-ind
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