June 3, 2019

Cream skimming on online platforms

When sellers know too much about buyers, both can suffer.

When online platforms like Lyft and Airbnb share more information, their users spend more time searching for the best matches—what economists call "cream skimming." Cream skimming makes online markets inefficient and slow. In the May issue of American Economic Journal: Microeconomics, authors Gleb Romanyuk and Alex Smolin showed why many matching platforms have this problem and how it can be stopped. As online markets become more and more pervasive, their design will be critical to a well-functioning digital economy.