Optimal search segmentation mechanisms for online platform markets

DOI10.1007/978-3-030-35389-6_22zbMATH Open1435.91118arXiv1908.07489OpenAlexW2991127404MaRDI QIDQ777976FDOQ777976

Authors: D. Kharzeev 

Publication date: 30 June 2020

Abstract: Online platforms, such as Airbnb, hotels.com, Amazon, Uber and Lyft, can control and optimize many aspects of product search to improve the efficiency of marketplaces. Here we focus on a common model, called the discriminatory control model, where the platform chooses to display a subset of sellers who sell products at prices determined by the market and a buyer is interested in buying a single product from one of the sellers. Under the commonly-used model for single product selection by a buyer, called the multinomial logit model, and the Bertrand game model for competition among sellers, we show the following result: to maximize social welfare, the optimal strategy for the platform is to display all products; however, to maximize revenue, the optimal strategy is to only display a subset of the products whose qualities are above a certain threshold. We extend our results to Cournot competition model, and show that the optimal search segmentation mechanisms for both social welfare maximization and revenue maximization also have simple threshold structures. The threshold in each case depends on the quality of all products, the platform's objective and seller's competition model, and can be computed in linear time in the number of products.

Full work available at URL: https://arxiv.org/abs/1908.07489

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zbMATH Keywords

Bertrand competition gameonline platform marketssearch segmentation

Mathematics Subject Classification ID

Applications of game theory (91A80) Special types of economic markets (including Cournot, Bertrand) (91B54) Welfare economics (91B15)

Cites Work

• Title not available (Why is that?)
• On the Lambert \(w\) function
• Potential games
• Revenue Management Under a General Discrete Choice Model of Consumer Behavior
• Network Cournot competition
• Optimizing Multinomial Logit Profit Functions

Cited In (5)

• Title not available (Why is that?)
• Market segmentation in online platforms
• Revenue-maximizing rankings for online platforms with quality-sensitive consumers
• For-profit search platforms
• Online Assortment and Market Segmentation under Bertrand Competition with Set-Dependent Revenues

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