Research Article
Search Frictions and the Design of Online Marketplaces
@INPROCEEDINGS{10.4108/eai.8-8-2015.2260850, author={Andrey Fradkin}, title={Search Frictions and the Design of Online Marketplaces}, proceedings={The Third Conference on Auctions, Market Mechanisms and Their Applications}, publisher={ACM}, proceedings_a={AMMA}, year={2015}, month={8}, keywords={search marketplaces market design simulation experimentation frictions the sharing economy peer-to-peer markets}, doi={10.4108/eai.8-8-2015.2260850} }- Andrey Fradkin
Year: 2015
Search Frictions and the Design of Online Marketplaces
AMMA
ICST
DOI: 10.4108/eai.8-8-2015.2260850
Abstract
Online marketplaces increasingly act as intermediaries in labor, housing, dating, and other markets where traders match with each other. These marketplaces use novel data generated by users' activities on the website to design algorithms and products that influence the search and matching process. I use internal data from Airbnb, a prominent online marketplace for housing rentals, to study the efficiency of this market and the effects of ranking algorithms. I first show that potential guests engage in limited search, are frequently rejected by hosts, and match at lower rates as a result. I then estimate a micro-founded model of search and matching and use it to show that if frictions were removed, there would be 102% more matches in the marketplace. I propose and evaluate several ranking algorithms and show that a personalized algorithm would increase the matching rate by up to 10% over the status quo. However, due to equilibrium effects, the A/B search experiments favored by internet companies can overstate the true treatment effect of an algorithm by over 100% in some cases.
