Incentives for Exploration at Market Equilibrium

In several online marketplaces, the qualities of value-providing supply units (e.g., sellers, workers, service providers) are unknown when they join the platform. Ensuring efficient matchmaking in such markets may require identifying the higher-quality supply units, which requires a certain amount of exploration, i.e., matching with new supply units with uncertain qualities despite the availability of known high-quality supply. In the absence of centralized incentives that subsidize such myopically suboptimal matching choices, a natural question is whether competitive forces in the market may generate adequate incentives for such exploratory behavior amongst customers. The intuition is that established high-quality supply units may naturally demand higher equilibrium prices due to congestion compared to novices, effectively incentivizing customers to participate in exploration. This paper aims to understand the extent to which such intuition is well-founded.