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Misdirected search effort in a matching market: causes, consequences and a partial solution

Published: 01 June 2014 Publication History

Abstract

Using data from an online labor market, I show that buyers inefficiently pursue oversubscribed sellers. Although oversubscribed sellers are positively selected, this fact alone cannot account for the amount of attention they receive. "Excess" buyer attention is caused by an information asymmetry: buyers do not know seller capacities and cannot condition their search efforts accordingly. Sellers---having free disposal on buyer inquiries---have little incentive to disabuse searching buyers. This misdirected search effort is consequential: using an instrumental variables analysis, I show that a recruited seller rejecting a buyer's recruiting inquiry reduces the probability of match formation by as much as 67% points. Motivated by the empirical results, I show how the market-creating platform can optimally allocate buyer attention, given each seller's estimated per-encounter probability of forming a match.

Cited By

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  • (2023)Search Frictions, Sorting, and Matching in Two-Sided MarketsSSRN Electronic Journal10.2139/ssrn.4444283Online publication date: 2023
  • (2023)Market failure in a new model of platform design with partially informed consumersPhysica A: Statistical Mechanics and its Applications10.1016/j.physa.2023.128748619(128748)Online publication date: Jun-2023
  • (2022)The Welfare Effects of Peer Entry: The Case of Airbnb and the Accommodation IndustryAmerican Economic Review10.1257/aer.20180260112:6(1782-1817)Online publication date: 1-Jun-2022
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  1. Misdirected search effort in a matching market: causes, consequences and a partial solution

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    cover image ACM Conferences
    EC '14: Proceedings of the fifteenth ACM conference on Economics and computation
    June 2014
    1028 pages
    ISBN:9781450325653
    DOI:10.1145/2600057
    Permission to make digital or hard copies of part or all of this work for personal or classroom use is granted without fee provided that copies are not made or distributed for profit or commercial advantage and that copies bear this notice and the full citation on the first page. Copyrights for third-party components of this work must be honored. For all other uses, contact the Owner/Author.

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    Association for Computing Machinery

    New York, NY, United States

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    Published: 01 June 2014

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    Author Tags

    1. market design
    2. matching
    3. online labor markets
    4. search frictions

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    EC '14
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    EC '14: ACM Conference on Economics and Computation
    June 8 - 12, 2014
    California, Palo Alto, USA

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    EC '14 Paper Acceptance Rate 80 of 290 submissions, 28%;
    Overall Acceptance Rate 664 of 2,389 submissions, 28%

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