More is (Sometimes) Merrier: Heterogeneity in Demand Spillovers and Competition on a Digital Platform

Abstract

Platforms create value by connecting users to complementors offering goods or services. On platforms, complementors compete for market share, but may benefit each other by drawing demand to the platform, which may then “spill over” from one complementor to another. The simultaneous presence of competition and demand spillovers across complementors raises the question: When are relationships between complementors competitive vs. complementary? To help address this question, I investigate heterogeneity in on-platform demand spillovers. Studying the Spotify platform, I find that spillovers are larger, and peer complementor product launch more beneficial to a complementor, when the peer stimulates greater demand expansion, the platform directs attention to the complementor, and the complementor benefits more from learning. These findings extend literature on on-platform competition and inform complementor strategy.

Keywords: platforms, competition, spillovers, digital markets, agglomeration