Group Hug: Platform Competition with User-groups

Sarit Markovich () and Yaron Yehezkel ()
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Sarit Markovich: Kellogg School of Management, Northwestern University, Evanston, IL, USA
Yaron Yehezkel: Coller School of Management, Tel Aviv University, Ramat Aviv, Israel

No 19-04, Working Papers from NET Institute

Abstract: We consider platform competition in the presence of small users and a user-group. One platform enjoys a quality advantage and the other benefits 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 find that when the group is sufficiently 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 efficient platform it does not necessarily increase consumer surplus. Specifically, a non-group user benefits 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.

Keywords: network externalities; coordination (search for similar items in EconPapers)
JEL-codes: L1 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2019-09
New Economics Papers: this item is included in nep-cdm, nep-com, nep-ind, nep-mic and nep-pay
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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