July 2020
In many settings; market designers must contend with the presence of firms which they do not directly control and who do not participate in the “designed” portion of the market. We study the case of a decentralized “off-platform” aftermarket which operates jointly with a centralized college admissions platform in Chile. We evaluate the impacts of this aftermarket on college enrollment; persistence; graduation; and students’ welfare. To do so; we exploit a policy change in 2012 which caused a significant number of off-platform higher education programs to join the platform. We show that the share of students declining their placed spot decreased by 8%; dropout rates at the end of the first year of college dropped by 2 percentage points (a 16% drop) and graduation within six years increased by 2 to 5 percentage points following this event. To quantify welfare impacts and decompose channels; we develop and estimate an empirical model of college applications; aftermarket waitlists; and matriculation choices using detailed individual-level administrative data from Chile on almost half a million applicants. According to model estimates; welfare increases substantially; especially for less advantaged students and for women; following the policy change. Counterfactual analysis suggests that more desirable options generate larger negative externalities when not on the platform. These externalities are driven by students who receive and decline on-platform offers; and are amplified by substantial frictions in waitlists. Our results indicate that platform design and the scope of the platform can have real impacts on outcomes of interest.