Cream Skimming and Information Design in Matching Markets
37 Pages Posted: 25 May 2018
Date Written: May 14, 2018
Short-lived buyers arrive to a platform over time and randomly match with sellers. The sellers stay at the platform and sequentially decide whether to accept incoming requests. The platform designs what buyer information the sellers observe before deciding to form a match. We show full information disclosure leads to a market failure because of excessive rejections by the sellers. If sellers are homogeneous, then coarse information policies are able to restore efficiency. If sellers are heterogeneous, then simple censorship policies are often constrained efficient as shown by a novel method of calculus of variations.
Keywords: cream skimming, matching markets, market failure, information design, calculus of variations
JEL Classification: C73, C78, D82, D83
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