Competing Matchmakers: An Experimental Analysis

Abstract

Platform competition is ubiquitous, yet platform market structure is little understood. Theory models typically su¤er from equilibrium multiplicityplatforms might coexist or the market might tip to either platform. We use laboratory experiments to study the outcomes of platform competition. When platforms are primarily vertically di¤erentiated, we …nd that even when platform coexistence is theoretically possible, markets inevitably tip to the more e¢ cient platform. When platforms are primarily horizontally di¤erentiated, so there is no single e¢ cient platform, we …nd strong evidence of equilibrium coexistence.We thank Robin Chark and Eric Set for their excellent research assistance. We also thank

Too Big to Fail? Overcrowding a Multi-Sided Platform and Sustained Competitive Advantage

“…Whereas the preceding explanations on the oligopolistic outcomes of platform competition have mostly centered on sufficient platform differentiation ( [10]), in this paper we take another view. In particular, we test whether an incumbent platform that has the monopoly initially (i.e., all buyers and sellers are affiliated the platform initially) will sustain its market leadership when an identical platform enters the market (e.g., with equal price and at similar technological quality).…”

“…Sufficient platform differentiation may be the primary reason for why we are not always observing the winner-take-all outcome in platform-based markets ( [9], [10]). In other words, the literature is rather consistent in predicting strong market concentration in platform-based markets, when platforms are undifferentiated but possess installed bases of different sizes.…”

“…This might not be a coincidence as platform-based markets are arguably characterized of winner-take-all dynamics. That is, the platform with the biggest installed base of buyers and sellers should sustain market leadership and basically take over the entire market, because of the prevalence of positive indirect network effects in platform-based markets ( [9], [10], [13]- [15]). Thus, multi-sided platforms are becoming the next major organizational form of interest to strategic management scholars seeking to explain sustained competitive advantage ( [1]- [4], [8]).…”

“…This proposition is based on the prevalence of positive indirect network effects in platform-based markets ( [9], [10]). They imply that a bigger installed base of buyers and sellers to a platform protects it from competitive entry (see also [11], [12]).…”

The Role of Coordination Bias in Platform Competition

“…In a related experimental study, Hossain et al. () consider a two‐sided market when platforms are not strategic players and cannot manipulate prices for attracting agents. They find that even though a static theoretical model allows for multiple equilibria in the agents' choices, in a dynamic game, agents converge to the Pareto‐dominant equilibrium.…”