The Exclusionary Effects of Addictive Platforms

Abstract

We study the incentives of an incumbent social media platform to be addictive depending on whether it expects to face future competition. In our model, consumers have different levels of vulnerability to becoming addicted to an addictive platform and are ex ante rational and fully aware of the risks of addiction. The paper will show that although the incumbent platform prefers to be non-addictive when not facing the threat of entry, the entry threat can make choosing to be an addictive platform more profitable due to its ability to deter entry. This can occur even when social welfare is higher with a non-addictive monopoly.