Competition in Matching Technologies

Abstract

We analyze the trade-off between monopoly and competition in matching markets where one side is exempted from payment. The socially efficient outcome is characterized by an optimal quality provision and an efficient market coverage: matched agents are matched assortatively and all agents find a partner. Under monopoly, most agents are matched assortatively, but some of them are mismatched. Besides, the market is fully covered only if the population of agents who pay for intermediation service is not too heterogeneous. Under competition, matched agents are matched efficiently, but some of them remain unmatched. The quality provision and market coverage objectives cannot be reached simultaneously. We also show that, under monopoly, if one population of agents is quite heterogenous, then, exempting these agents from payment may have a positive impact on market coverage and total surplus.

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