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At What Quality and What Price?: Eliciting Buyer Preferences as a Market Design Problem

Published: 15 June 2015 Publication History

Abstract

Buyers and sellers in markets often signal to inform the other side about their preferences. Both have a mutual incentive to reveal information with respect to horizontal differentiation, but the case of vertical differentiation is more complex: a buyer claiming they place a high value on quality may attract more sellers of the right ``type'' increasing efficiency, but they might also simply pay a higher price. Although an efficiency-minded social planner may not care about higher prices, if this fear prevents a buyer from stating his of her true preferences, then desirable sorting caused by information-revelation may be unattainable. In this paper, we consider the buyer's vertical differentiation disclosure problem through the lens of a large field experiment conducted in an online labor market. A new signaling mechanism was introduced into the market that allowed buyers to state their relative preferences over price and quality. We find that the buyer signal improved seller-side sorting, with more sellers going to buyers of the right ``type''; the total number of applications also fell. However, sellers also clearly tailored their wages bid to the type of buyer they faced. Despite this markup, buyers chose to honestly disclose their preferences, suggesting they found the sorting effect to dominate the bargaining power effect.

Cited By

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  • (2020)How Do Employers Use Compensation History? Evidence from a Field ExperimentJournal of Labor Economics10.1086/709277(000-000)Online publication date: 30-Oct-2020
  • (2018)Mechanism design for social goodAI Matters10.1145/3284751.32847614:3(27-34)Online publication date: 19-Oct-2018
  • (2018)Dynamic Recommendations for Sequential Hiring Decisions in Online Labor MarketsProceedings of the 24th ACM SIGKDD International Conference on Knowledge Discovery & Data Mining10.1145/3219819.3219881(453-461)Online publication date: 19-Jul-2018
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  1. At What Quality and What Price?: Eliciting Buyer Preferences as a Market Design Problem

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    cover image ACM Conferences
    EC '15: Proceedings of the Sixteenth ACM Conference on Economics and Computation
    June 2015
    852 pages
    ISBN:9781450334105
    DOI:10.1145/2764468
    Permission to make digital or hard copies of all or part of this work for personal or classroom use is granted without fee provided that copies are not made or distributed for profit or commercial advantage and that copies bear this notice and the full citation on the first page. Copyrights for components of this work owned by others than the author(s) must be honored. Abstracting with credit is permitted. To copy otherwise, or republish, to post on servers or to redistribute to lists, requires prior specific permission and/or a fee. Request permissions from [email protected].

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    New York, NY, United States

    Publication History

    Published: 15 June 2015

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    Author Tags

    1. market design
    2. matching
    3. signaling

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    EC '15
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    EC '15: ACM Conference on Economics and Computation
    June 15 - 19, 2015
    Oregon, Portland, USA

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    EC '15 Paper Acceptance Rate 72 of 220 submissions, 33%;
    Overall Acceptance Rate 664 of 2,389 submissions, 28%

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    Cited By

    View all
    • (2020)How Do Employers Use Compensation History? Evidence from a Field ExperimentJournal of Labor Economics10.1086/709277(000-000)Online publication date: 30-Oct-2020
    • (2018)Mechanism design for social goodAI Matters10.1145/3284751.32847614:3(27-34)Online publication date: 19-Oct-2018
    • (2018)Dynamic Recommendations for Sequential Hiring Decisions in Online Labor MarketsProceedings of the 24th ACM SIGKDD International Conference on Knowledge Discovery & Data Mining10.1145/3219819.3219881(453-461)Online publication date: 19-Jul-2018
    • (undefined)The Future of Work in the Sharing Economyy. Market Efficiency and Equitable Opportunities or Unfair Precarisation?SSRN Electronic Journal10.2139/ssrn.2784774

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