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Group Hug: Platform Competition with User Groups

  • Sarit Markovich
  • Yaron Yehezkel
American Economic Journal: Microeconomics
vol. 14, no. 2, May 2022
(pp. 139-75)
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Abstract

We consider platform competition for 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 a group that can facilitate coordination on the high-quality platform may choose to maintain the dominance of the low-quality one. Users' utility is non-monotonic in the proportion of the group. Finally, we highlight factors that motivate the group to help the high-quality platform to win the market.

Citation

Markovich, Sarit, and Yaron Yehezkel. 2022. "Group Hug: Platform Competition with User Groups." American Economic Journal: Microeconomics, 14 (2): 139-75. DOI: 10.1257/mic.20190372

Additional Materials

JEL Classification

  • D85 Network Formation and Analysis: Theory
  • L14 Transactional Relationships; Contracts and Reputation; Networks
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