Group Hug: Platform Competition With User-Groups

Abstract

We consider platform competition in the presence of small users and a usergroup. One platform enjoys a quality advantage and the other benets 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 nd that when the group is suciently large to facilitate coordination on the high-quality platform, the group may choose to join the low-quality one. When the group joins the more ecient platform it does not necessarily increase consumer surplus. Specically, a non-group user benets from a group with an intermediate size, and prefers a small group over a large group. The utility of a group user is also non-monotonic in the size of the group.

Superstars in Two-Sided Markets: Exclusives or Not?

“…In the latter case, exclusive dealing would stimulate switching decisions on favored platform. As in any model with network externalities (e.g., Caillaud & Jullien 2003, Hagiu 2006, Damiano & Li 2007, Jullien 2011, Markovich & Yehezkel 2018, this also entails a coordination problem. If consumers believe that a sufficiently large number of other consumers and firms will follow the Superstar, then the market can tip.…”

“…If consumers believe that a sufficiently large number of other consumers and firms will follow the Superstar, then the market can tip. For instance, a device to solve this coordination problem is grouping homogeneous users as in Markovich & Yehezkel (2018). This would help an efficient platform to drive a less efficient focal rival out of the market.…”

“…Indeed, the Superstar's exclusive contract with the dominant platform works as a coordination device, with the rival driven out of the market. By contrast, if the Superstar is exclusive on the small platform, our problem resembles that of Markovich & Yehezkel (2018) but with heterogeneous consumers. Heterogeneity implies that the Superstar might be able to overturn market dominance but hardly would generate market tipping.…”

“…As a result, the Superstar makes lower profits andγ nd is lower as the numerator becomes Π 1 (1, 0) − Π 1 (0, 1). As in Markovich & Yehezkel (2018), exclusivity could become a device to move consumers from the focal platform to the rival.…”

“…The music industry is populated by few toprated artists (e.g., Beyoncé, Taylor Swift) and a long tail of smaller, often unknown, artists. Similar evidence is also shared by the market for apps (e.g., Angry Birds), open-source software (e.g., Pivotal, Red Hat), videogames (e.g., Fortnite), top gamers (e.g., Ninja), audio-books (e.g., Robert Caro, Jeffery Deaver), or by the market for investors and peer-to-peer (P2P) payment networks (Markovich & Yehezkel 2018). Even in more traditional markets, such as the shopping mall industry, consumers might have a strong preference for anchor stores (e.g., prestige and fashion stores, departmental stores).…”