 Can platform competition support market segmentation? Network externalities versus matching efficiency in equity crowdfunding marketsEsther Gal‐Or, Ronen Gal‐Or and Nabita Penmetsa Journal of Economics & Management Strategy, 2019, vol. 28, issue 3, 420-435 Abstract: We investigate whether, in spite of the existence of cross‐market network externalities, platform competition can lead to segmentation of the two sides of the market served by the platforms. We address this question in the context of competition between two equity crowdfunding platforms that connect startups looking for capital with prospective investors. Given the heterogeneity in the populations of startups and investors in terms of the riskiness of the former population and the degree of risk aversion of the latter population, we investigate whether there exists an equilibrium where the two populations are segmented to ensure an improved match between them. We find that the segmenting equilibrium can arise only when compatibility in terms of their risk profiles is of high importance to both populations, and compatibility is significantly more important than the size of the network externality considered by startups. Segmentation is likely to improve the welfare of both populations when the basic benefit from any kind of match is relatively high. Date: 2019 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:bla:jemstr:v:28:y:2019:i:3:p:420-435 Ordering information: This journal article can be ordered from Access Statistics for this article More articles in Journal of Economics & Management Strategy from Wiley Blackwell |
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