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Group Hug: Platform Competition with User Groups

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  • Sarit Markovich
  • Yaron Yehezkel

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.

Suggested Citation

  • Sarit Markovich & Yaron Yehezkel, 2022. "Group Hug: Platform Competition with User Groups," American Economic Journal: Microeconomics, American Economic Association, vol. 14(2), pages 139-175, May.
    • Handle: RePEc:aea:aejmic:v:14:y:2022:i:2:p:139-75
    DOI: 10.1257/mic.20190372
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    References listed on IDEAS

    as
    1. Hanna Hałaburda & Yaron Yehezkel, 2016. "The Role of Coordination Bias in Platform Competition," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 25(2), pages 274-312, April.
    2. Narasimhan, Chakravarthi, 1988. "Competitive Promotional Strategies," The Journal of Business, University of Chicago Press, vol. 61(4), pages 427-449, October.
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    Cited by:

    1. Sarit Markovich & Yaron Yehezkel, 2024. "“For the public benefit”: Data policy in platform markets," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 33(3), pages 652-685, August.

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    More about this item

    JEL classification:

    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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