Impact of Entry of Switching-Referral Platforms

Posted: 17 Apr 2023

See all articles by Yuetao Gao

Yuetao Gao

Xiamen University

Wei Shi Lim

National University of Singapore

Xiaoyan Xu

Southwestern University of Finance and Economics (SWUFE)

Date Written: April 6, 2023

Abstract

Many consumers do not carry the product that gives them higher value due to their unawareness of this choice for some product categories (e.g., mobile phone plans, credit cards and insurance). Recently, a new type of platforms has entered the market, and consumers can switch to high-value products with their free switching-referral technology. However, the switching choices are restricted to only the firms enrolled with the platforms. We study entry of such a switching-referral platform on consumer surplus and firm profit, using a game theoretical model that captures both enrollment interaction between the platform and firms and product switch of consumers---the two intertwining characteristics that differentiate this platform from others. We find that when many uninformed consumers are not matched with high-value products, consumer surplus is lower if the platform can help more of them switch to these products ex ante. Furthermore, we show that the platform prefers a non-exclusive contract that enrolls all firms and thus is able to facilitate more consumer switching. On the other hand, enrolling with the platform is a dominant strategy for the firms; however, they may consequently realize less profit although their products being better matched to more consumers makes them set higher prices. Moreover, we also demonstrate that either a low cost of reaching uninformed consumers by the platform or a low switching cost of consumers may hurt both consumers and firms after entry of the platform. We also discuss managerial implications of our results.

Keywords: platforms, switching-referral technology, consumer switching, entry, firm enrollment, competition, pricing, game theory

Suggested Citation

Gao, Yuetao and Lim, Wei Shi and Xu, Xiaoyan, Impact of Entry of Switching-Referral Platforms (April 6, 2023). Available at SSRN: https://ssrn.com/abstract=4411599

Yuetao Gao (Contact Author)

Xiamen University ( email )

Xiamen, Fujian 361005
China

Wei Shi Lim

National University of Singapore ( email )

1 Business Link
Singapore, 117592
Singapore

Xiaoyan Xu

Southwestern University of Finance and Economics (SWUFE) ( email )

55 Guanghuacun St,
Chengdu, Sichuan 610074
China

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
278
PlumX Metrics