Impact of Group Users on Two-sided Platform Competition

Two-sided markets exhibiting network effects often face coordination problems, which may lead to an inefficient outcome where a lower-quality platform wins the market. Some users make collective decisions as a group, potentially affecting the choices of others. This paper analyzes the impact of group users on two-sided platform competition. We develop a model with two platforms: one with a quality advantage (the higher-quality platform) and the other with a network advantage due to its focality (the lowerquality platform), meaning that users expect others to join it when multiple equilibria exist. There are two types of users: individual users and group users. An individual user makes decisions independently, whereas group users make collective choices that can affect others’ decisions. Our main findings are as follows: First, the group affects individual users’ choices if its size is sufficiently large, meaning it is pivotal. However, even if the group is pivotal, it may join the lower-quality platform unless it is large enough. The group joins the higher-quality platform only when it is both pivotal and sufficiently large. Second, we examine how the group size affects surplus distribution. Increasing group size improves market efficiency but exacerbates the disparity in the surplus between the group users and individual users. Our results highlight the dual role of group users in platform competition: while they can enhance efficiency by steering the market toward the higher-quality platform, they may also contribute to imbalances in surplus distribution.