Nungsari, M., (2019). Searching for Yourself: A Model of Pricing on a Two-Sided Matching Platform with Horizontally-Differentiated Agents.

Melati Nungsari | ASB Faculty | Research Paper

Discipline: Economics

Abstract
This paper studies how a monopolist firm operating a two-sided matching platform optimally sets its prices in the presence of agents who are horizontally-differentiated, a la Salop [1979]. Agents are searching for their ideal match (their own type) and face a pricing schedule set by the firm. In each period, agents randomly meet up and decide whether or not to marry. If both agents agree on marrying, they leave the platform forever; if not, they continue searching in the next period. In the steady-state equilibrium, I show that from a profit-maximization standpoint, two-part tariffs reduce to a uniform pricing structure; that is, the monopolist optimally sets per-interaction prices to 0 and charges all agents the same fixed fee to join the platform, regardless of their type. The results of the paper may be interpreted in terms of externalities–when agents only match on a single horizontal dimension, there are no matching externalities and so, the resulting optimal pricing strategy from the point of view of the firm is non-distortionary. I conclude the paper by presenting some other interesting problems related to externalities and pricing on two-sided matching platforms that can be studied by using this simple model.