Buyer Signaling Improves Matching: Evidence from a Field Experiment

In a large online market, buyers were given the opportunity to signal their relative preferences over price and quality—first experimentally, then later as the default experience in the market. The possibility of signaling caused substantial sorting by sellers to buyers of the right “type.” However, sellers clearly tailored their bids to the type of buyer they faced, bidding up against buyers with a high revealed willingness to pay. Despite this markup, a separating equilibrium was sustained over time, post-experiment, suggesting buyers found revelation incen- tive compatible. We find evidence that informative signaling improved both matching efficiency and match quality.