Linde Institute/SISL Seminar: Daniela Saban, Stanford University

Abstract: Two-sided matching platforms can control and optimize over many aspects of the search for partners. To understand how the search for partners should be designed, we consider a dynamic two-sided search model with strategic agents who must spend a cost to discover their value for each potential partner. We find that in many settings, the platform can mitigate wasteful search effort by restricting what agents can see/do. Surprisingly, simple restrictions can improve social welfare even when screening costs are small and agents on each side are ex-ante homogeneous. In asymmetric markets where agents on one side have a tendency to be more selective (due to greater market power), the platform should force the more selective side of the market to reach out first, by explicitly disallowing the less selective side from doing so. This allows the agents on the less selective side to exercise more choice in equilibrium. When agents are vertically differentiated, the platform can significantly improve welfare even in the limit of vanishing screening costs, by forcing the shorter side of the market to propose and by hiding quality information. Furthermore, a Pareto improvement in welfare is possible in this limit. (Joint work with Yash Kanoria)