Preference Uncertainty and Information Asymmetry in Online Matching Platforms
Carr P. Collins Chair in Management Information Science
Cox School of Business
Southern Methodist University
Friday, Sep 10
10 – 11 am | Zoom
A firm seeking a business partner, or an individual searching for a life partner, can use an online matching platform not only to efficiently search for available candidates, but also to address two related challenges. First, due to uncertainty in their subjective preferences, match-seekers may not know what candidates would be compatible with them. And second, due to information asymmetry in online settings, candidates may misrepresent their credentials. In this paper, we model and analyze whether an online matching platform should enhance search with a positioning capability that helps match-seekers determine the subjective compatibility of potential matches, and also whether it should offer an authentication service that reliably verifies the objective quality of match-seekers. We analyze the equilibrium behavior of match-seekers, and show how this behavior impacts the optimal strategy of the platform with respect to positioning and authentication. Our analysis provides insights on the relative value of authentication and positioning, and identifies conditions under which the platform should focus on each of these services. We also show that positioning and authentication reinforce each other (act as complements) for some levels of market quality and the platform’s positioning capability, while they detract from each other (act as substitutes) in others. Our results help us develop guidelines for the platform’s pricing decisions, and provide valuable practical insights for owners and operators of match-making platforms, by helping them understand the interplay between these two important and orthogonal features in online matching.