Abstract
A firm seeking a business partner, or an individual searching for a life partner, can use an online matching platform not only to efficiently search for available candidates, but also to address two related challenges. First, a match-seeker may not know what candidates would be compatible with them. And second, particularly in the online setting, candidates may misrepresent their credentials. In this paper, we model and analyze whether an online matching platform’s decisions should enhance search with a positioning capability that helps match-seekers determine the subjective compatibility of potential matches (horizontal differentiation), and also whether it should offer an authentication service that enables match-seekers to reliably signal their objective quality (vertical differentiation). We analyze the equilibrium behavior of match-seekers in the presence of uncertainty about both compatibility and quality of potential matches, and show how this behavior impacts the optimal strategy of the platform with respect to positioning and authentication. For instance, positioning and authentication reinforce each other (act as complements) for some levels of market quality and the platform's positioning capability, while they detract from each other (act as substitutes) in others. These results also help us develop guidelines for the platform's pricing decisions. Our findings provide valuable practical insights for owners and operators of match-making platforms, by helping them understand the interplay between these two important and orthogonal features in online matching. .
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