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Group Hug: Platform Competition with User-groups

Author

Listed:
  • Sarit Markovich

    (Kellogg School of Management, Northwestern University, Evanston, IL, USA)

  • Yaron Yehezkel

    (Coller School of Management, Tel Aviv University, Ramat Aviv, Israel)

Abstract

We consider platform competition in the presence of small users and a user-group. One platform enjoys a quality advantage and the other benefits from favorable beliefs. We study whether the group mitigates the users' coordination problem –i.e., joining a low-quality platform because they believe that other users would do the same. We find that when the group is sufficiently large to facilitate coordination on the high-quality platform, the group may choose to join the low-quality one. When the group joins the more efficient platform it does not necessarily increase consumer surplus. Specifically, a non-group user benefits from a group with an intermediate size, and prefers a small group over a large group. The utility of a group user is also non-monotonic in the size of the group.

Suggested Citation

  • Sarit Markovich & Yaron Yehezkel, 2019. "Group Hug: Platform Competition with User-groups," Working Papers 19-04, NET Institute.
    • Handle: RePEc:net:wpaper:1904
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    References listed on IDEAS

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    Cited by:

    1. Jullien, Bruno & Sand-Zantman, Wilfried, 2021. "The Economics of Platforms: A Theory Guide for Competition Policy," Information Economics and Policy, Elsevier, vol. 54(C).
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    3. Calvano, Emilio & Polo, Michele, 2021. "Market power, competition and innovation in digital markets: A survey," Information Economics and Policy, Elsevier, vol. 54(C).

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    More about this item

    Keywords

    network externalities; coordination;

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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