Buyer-Optimal Platform Design

Abstract

A platform matches a unit-mass of sellers, each owning a single product of heterogeneous quality, to a unit-mass of buyers with differing valuations for unit-quality. After matching, sellers make take-it-or-leave-it price-offers to buyers. Initially, valuations of buyers are only known to them and the platform, but sellers make inferences from the matching algorithm. The efficient matching is positive-assortative, but buyer-optimal matchings are, often, stochastically negative-assortative (i.e., compared to lower-quality sellers, high-quality ones are matched to buyers with lower expected valuation). Albeit everyone trades, generating rents for the side lacking bargaining power results in inefficient matching.