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Smaller Slices of a Growing Pie: The Effects of Entry in Platform Markets

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  • Oren Reshef

Abstract

Entry of new firms onto a platform has an ambivalent effect on the incumbent firms operating on the platform: the main tension lies between the negative effects of increased competitive pressure and positive indirect network effects. This paper empirically studies the net effect of these countervailing forces and its dependence on firm quality, using a quasi-exogenous shock on a large online platform. On average, market expansion favors incumbents, though the average effect masks substantial heterogeneity: high-quality incumbents experience significant increases in sales and revenue, whereas low-quality firms perform unambiguously worse. Lastly, the paper explores the main mechanisms and firms' responses.

Suggested Citation

  • Oren Reshef, 2023. "Smaller Slices of a Growing Pie: The Effects of Entry in Platform Markets," American Economic Journal: Microeconomics, American Economic Association, vol. 15(4), pages 183-207, November.
    • Handle: RePEc:aea:aejmic:v:15:y:2023:i:4:p:183-207
    DOI: 10.1257/mic.20220055
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • L84 - Industrial Organization - - Industry Studies: Services - - - Personal, Professional, and Business Services

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