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. Complementors compete on platforms but may also benefit each other by drawing demand to the platform, which may then “spillover” from one complementor to another. This tension raises the question: When are relationships between complementors competitive vs. complementary? To help address this question, I apply theory on agglomeration-driven demand spillovers to examine when on-platform demand spillovers created by peer product launch are larger vs. smaller. Studying the Spotify platform, I find spillovers are larger, and peer album release more beneficial to an artist, when the peer stimulates greater demand expansion, platform-mediated inter-complementor proximity is higher, and the artist benefits more from consumer learning. Findings extend literature on on-platform competition and inform complementor strategy.

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