Group Hug: Platform Competition with User-Groups

44 Pages Posted: 23 Oct 2019

See all articles by Sarit Markovich

Sarit Markovich

Kellogg School of Management

Yaron Yehezkel

Coller School of Management , Tel-Aviv University

Date Written: September 30, 2019

Abstract

We consider platform competition in the presence of small users and a usergroup. 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 extremities, coordination

JEL Classification: L1

Suggested Citation

Markovich, Sarit and Yehezkel, Yaron, Group Hug: Platform Competition with User-Groups (September 30, 2019). NET Institute Working Paper No. 19-04, Available at SSRN: https://ssrn.com/abstract=3468410 or http://dx.doi.org/10.2139/ssrn.3468410

Sarit Markovich (Contact Author)

Kellogg School of Management ( email )

2211 Campus Drive
Kellogg
Evanston, IL IL 60208
United States

Yaron Yehezkel

Coller School of Management , Tel-Aviv University ( email )

Ramat Aviv
Tel Aviv, 69978
Israel

HOME PAGE: http://www.tau.ac.il/~yehezkel/

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