Managing Congestion in Matching Markets

Abstract

Problem definition: Participants in matching markets face search and screening costs when seeking a match. We study how platform design can reduce the effort required to find a suitable partner. Practical/academic relevance: The success of matching platforms requires designs that minimize search effort and facilitate efficient market clearing. Methodology: We study a game-theoretic model in which “applicants” and “employers” pay costs to search and screen. An important feature of our model is that both sides may waste effort: Some applications are never screened, and employers screen applicants who may have already matched. We prove existence and uniqueness of equilibrium and characterize welfare for participants on both sides of the market. Results: We identify that the market operates in one of two regimes: It is either screening-limited or application-limited. In screening-limited markets, employer welfare is low, and some employers choose not to participate. This occurs when application costs are low and there are enough employers that most applicants match, implying that many screened applicants are unavailable. In application-limited markets, applicants face a “tragedy of the commons” and send many applications that are never read. The resulting inefficiency is worst when there is a shortage of employers. We show that simple interventions—such as limiting the number of applications that an individual can send, making it more costly to apply, or setting an appropriate market-wide wage—can significantly improve the welfare of agents on one or both sides of the market. Managerial implications: Our results suggest that platforms cannot focus exclusively on attracting participants and making it easy to contact potential match partners. A good user experience requires that participants not waste effort considering possibilities that are unlikely to be available. The operational interventions we study alleviate congestion by ensuring that potential match partners are likely to be available.

The Secret to Finding a Match: A Field Experiment on Choice Capacity Design in an Online Dating Platform

“…Finally, several studies focus on how online matching platforms can improve market efficiency and welfare by restricting interactions or reducing the amount of information disclosed to users (Allon et al 2012, Halaburda et al 2018, Kanoria and Saban 2021, Arnosti et al 2021. For instance, in the context of the labor market, Arnosti et al (2021) show that decreased application costs result in fiercer competition and lower employer welfare. Thus, they suggest that a layer of friction in the application process (e.g., charging a larger fee and restricting the number of applications) enhances overall user welfare.…”

From the Classics to New Tunes: A Neoclassical View on Sharing Economy and Innovative Marketplaces

“…For example, Allon et al (2012) study the impact of facilitating the matching between service providers and customers, and enabling communication among service providers, in an online service marketplace. Arnosti et al (2020) study a matching market in which participants face search and screening costs when seeking a match. The authors focus on the platform's moderating controls, such as limiting the number of applications that an individual can send or making it more costly to apply.…”

Task Allocation and On-the-Job Training

“…6 In the matching context, there is little work considering monitoring quality as a market-design instrument. One exception is Arnosti, Johari, and Kanoria (2015), who illustrate the impact of transparency in employment markets.…”