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Search Diversion and Platform Competition

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  • Hagiu, Andrei
  • Jullien, Bruno

Abstract

Platforms use search diversion in order to trade off total consumer traffic for higher revenues derived by exposing consumers to unsolicited products (e.g. advertising). We show that the entry of a platform competitor leads to higher (lower) equilibrium levels of search diversion relative to a monopoly platform when the degree of horizontal differentiation between platforms is intermediate (low). On the other hand, more intense competition between active platforms (i.e. less differentiation) leads to less search diversion. When platforms charge consumers fixed access fees, all equilibrium levels of search diversion under platform competition are equal to the monopoly level, irrespective of the nature of competition. Furthermore, platforms that charge positive (negative) access fees to consumers have weaker (stronger) incentives to divert search relative to platforms that cannot charge such fees. Finally, endogenous affiliation on both sides (consumers and advertising) leads to stronger incentives to divert search relative to the one-sided exogenous affiliation (vertical integration) benchmark, whenever the marginal advertiser derives higher profits per consumer exposure relative to the average advertiser.

Suggested Citation

  • Hagiu, Andrei & Jullien, Bruno, 2013. "Search Diversion and Platform Competition," TSE Working Papers 13-431, Toulouse School of Economics (TSE).
  • Handle: RePEc:tse:wpaper:27585
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Gokhan Guven & Eren Inci & Antonio Russo, 2017. "Apparent Competition in Two-Sided Platforms," CESifo Working Paper Series 6660, CESifo Group Munich.
    2. Anderson, Simon P. & Jullien, Bruno, 2016. "The advertising-financed business model in two-sided media markets," TSE Working Papers 16-632, Toulouse School of Economics (TSE).
    3. Fabrizio Germano & Francesco Sobbrio, 2016. "Opinion dynamics via search engines (and other algorithmic gatekeepers)," Economics Working Papers 1552, Department of Economics and Business, Universitat Pompeu Fabra, revised Mar 2018.

    More about this item

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L5 - Industrial Organization - - Regulation and Industrial Policy

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