Friends in High Places: Demand Spillovers and Competition on Digital Platforms

66 Pages Posted: 12 May 2021 Last revised: 28 Mar 2022

See all articles by Manav Raj

Manav Raj

New York University (NYU) - Leonard N. Stern School of Business

Date Written: March 28, 2022

Abstract

By lowering transaction costs, digital platforms may foster complementary dynamics across offerings that compete in other settings. I study the effect of peer expansion on provider performance and consider when demand spillovers outweigh substitution across providers on a digital platform. Using data from the Spotify music streaming platform, I find that, on average, peer expansion improves focal provider performance on the platform, however provider characteristics moderate this effect. Expansion by a popular peer generates demand spillovers that overcome the effect of substitution and improve focal provider performance, while expansion by a less popular peer does not generate sufficient spillovers to overcome the negative effects of substitution. I explore how platform recommendations magnify spillovers and consider the strategic implications of these market dynamics. In doing so, I highlight that digital platforms alter how firms compete and present evidence that, on some digital platforms, firms may face less intense head-to-head competition from more popular peers.

Keywords: platforms, competition, spillovers, digital markets, media economics

Suggested Citation

Raj, Manav, Friends in High Places: Demand Spillovers and Competition on Digital Platforms (March 28, 2022). NYU Stern School of Business, Available at SSRN: https://ssrn.com/abstract=3843249 or http://dx.doi.org/10.2139/ssrn.3843249

Manav Raj (Contact Author)

New York University (NYU) - Leonard N. Stern School of Business ( email )

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New York, NY NY 10012
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