Platform Encroachment and Own-Content Bias

Abstract

This paper presents a model of platform encroachment, in which a platform not only acts as an intermediary between consumers and third-party sellers, but also sells its first-party products. When encroaching, the platform chooses between fair and biased search engines. Under the fair search, all products are equally likely to appear in search results, whereas the first-party product is more likely to appear under biased search. Biased encroachment makes the platform impose a lower commission on sellers, which leads to a lower equilibrium price which consequently attracts more consumers. Increased consumer participation can raise seller participation through indirect network externalities.

Keywords: encroachment, first-party selling, intermediary, search biases, two-sided markets

JEL Classification: L1, L4