Search, Matching, and the Role of Digital Marketplace Design in Enabling Trade: Evidence from Airbnb

Digital peer-to-peer marketplaces have increased the volume of trade in underutilized assets. I use the setting of Airbnb to investigate transaction costs in these markets and the role of search engine design in reducing these costs. I show that this market is characterized by many options, heterogeneity in preferences, and uncertain availability. Consequently, search is limited, time-consuming, and sometimes results in failed transaction attempts due to rejections of searchers by hosts. I estimate a model of search and matching and use it to show that the search engine plays a critical role in facilitating transactions. Without availability tracking and filtering, searches with accepted inquiries would fall by 68% and rejections would increase by 140%. Lastly, I show how searcher outcomes can be improved from the status quo (as of 2014) by algorithms that redirect searchers towards listings that are more likely to accept those searchers.