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Group Hug: Platform Competition with User Groups

Author

Listed:
  • Sarit Markovich
  • Yaron Yehezkel

Abstract

We consider platform competition for 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 a group that can facilitate coordination on the high-quality platform may choose to maintain the dominance of the low-quality one. Users' utility is non-monotonic in the proportion of the group. Finally, we highlight factors that motivate the group to help the high-quality platform to win the market.

Suggested Citation

  • Sarit Markovich & Yaron Yehezkel, 2022. "Group Hug: Platform Competition with User Groups," American Economic Journal: Microeconomics, American Economic Association, vol. 14(2), pages 139-175, May.
    • Handle: RePEc:aea:aejmic:v:14:y:2022:i:2:p:139-75
    DOI: 10.1257/mic.20190372
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    References listed on IDEAS

    as
    1. Hanna Hałaburda & Yaron Yehezkel, 2016. "The Role of Coordination Bias in Platform Competition," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 25(2), pages 274-312, April.
    2. Narasimhan, Chakravarthi, 1988. "Competitive Promotional Strategies," The Journal of Business, University of Chicago Press, vol. 61(4), pages 427-449, October.
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    Citations

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    Cited by:

    1. Seiya Hirano, 2024. "Consumer Coordination and Optimal Pricing under Network Externalities," ISER Discussion Paper 1267, Institute of Social and Economic Research, The University of Osaka.
    2. Elias Carroni & Leonardo Madio & Shiva Shekhar, 2024. "Superstar Exclusivity in Two-Sided Markets," Management Science, INFORMS, vol. 70(2), pages 991-1011, February.
    3. Robert Akerlof & Richard Holden & Luis Rayo, 2024. "Network Externalities and Market Dominance," Management Science, INFORMS, vol. 70(6), pages 4037-4050, June.
    4. Sarit Markovich & Yaron Yehezkel, 2026. "Competing for Cookies: Platforms’ Business Models in Data Markets with Network Effects," Management Science, INFORMS, vol. 72(2), pages 915-931, February.
    5. Sarit Markovich & Yaron Yehezkel, 2024. "“For the public benefit”: Data policy in platform markets," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 33(3), pages 652-685, August.
    6. Amit Kumar Bardhan & Saad Ashraf, 2024. "More buyers or more sellers: on marketing resource allocation strategies of competing two-sided platforms," Electronic Commerce Research, Springer, vol. 24(4), pages 2579-2608, December.
    7. Haijun Chen & Qi Xu, 2025. "Exclusivity Under Different Vertical Structures in Online Platforms With Network Effects," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 46(3), pages 1792-1815, April.
    8. Song, Haiqing & Cao, Kai & Duan, Housheng, 2025. "Strategic counterfeit suppression on online platform: Considering network externalities and online consumer reviews in a two-period framework," International Journal of Production Economics, Elsevier, vol. 287(C).

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    More about this item

    JEL classification:

    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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