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

66 Pages Posted: 12 May 2021 Last revised: 19 Jan 2023

See all articles by Manav Raj

Manav Raj

University of Pennsylvania - Management Department

Date Written: September 1, 2022


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 (September 1, 2022). Available at SSRN: or

Manav Raj (Contact Author)

University of Pennsylvania - Management Department ( email )

The Wharton School
Philadelphia, PA 19104-6370
United States

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