Search Frictions, Sorting, and Matching in Two-Sided Markets

This paper studies the impact of friction and preferences on match formation in two-sided markets. Because every agent has private information about their preferences for potential matches’ characteristics, forming a match based on mutual compatibility requires extensive costly search. We use field experiment data from an online dating platform to better understand the relative impact of search cost and preference on match outcomes. During the field experiment, randomly selected users are provided information about the preferences of their potential partners that can only be obtained through costly search otherwise. We find evidence suggesting that reducing frictions through this information provision leads to less sorting among matched couples in terms of their characteristics. This is because a user often assesses the match probability with a potential partner based on the similarity between their respective characteristics. The information provision allows a user to assess the match probability more accurately using the potential partner’s preference rather than characteristics. Consequently, it encourages users to initiate contact with those who are more likely to match despite their characteristics differences, leading to less sorting among matched couples. To investigate the relative contribution of frictions and preferences on assortative matching, we develop and estimate a model that incorporates frictions and preference heterogeneity across users. Our estimation results reveal that frictions play a significant role in shaping matching outcomes. Using model estimates, we simulate matches under the frictionless Gale-Shapley protocol, and we find that removing frictions leads to significantly less sorting between couples. We also find that frictions in our platform lead to a significant reduction in efficiency. These results highlight the importance of platform designs that aim to reduce frictions. More importantly, with one-third of the marriages in the U.S. marriages originating from online encounters, this paper shows how the design of an online platform can contribute to diversity in the marriage market