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Group Hug: Platform Competition with User Groups†

Group Hug: Platform Competition with User Groups† AbstractWe consider platform competition for small users and a user group. One platform enjoys a quality advantage and the other benefits from favorable beliefs. We study whether the group mitigates the users’ coordination problem—i.e., joining a low-quality platform because they believe that other users would do the same. We find that a group that can facilitate coordination on the high-quality platform may choose to maintain the dominance of the low-quality one. Users’ utility is non-monotonic in the proportion of the group. Finally, we highlight factors that motivate the group to help the high-quality platform to win the market. (JEL D85, L14) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Economic Journal: Microeconomics American Economic Association

Group Hug: Platform Competition with User Groups†

Group Hug: Platform Competition with User Groups†

American Economic Journal: Microeconomics , Volume 14 (2) – May 1, 2022

Abstract

AbstractWe consider platform competition for small users and a user group. One platform enjoys a quality advantage and the other benefits from favorable beliefs. We study whether the group mitigates the users’ coordination problem—i.e., joining a low-quality platform because they believe that other users would do the same. We find that a group that can facilitate coordination on the high-quality platform may choose to maintain the dominance of the low-quality one. Users’ utility is non-monotonic in the proportion of the group. Finally, we highlight factors that motivate the group to help the high-quality platform to win the market. (JEL D85, L14)

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Publisher
American Economic Association
Copyright
Copyright © 2022 © American Economic Association
ISSN
1945-7685
DOI
10.1257/mic.20190372
Publisher site
See Article on Publisher Site

Abstract

AbstractWe consider platform competition for small users and a user group. One platform enjoys a quality advantage and the other benefits from favorable beliefs. We study whether the group mitigates the users’ coordination problem—i.e., joining a low-quality platform because they believe that other users would do the same. We find that a group that can facilitate coordination on the high-quality platform may choose to maintain the dominance of the low-quality one. Users’ utility is non-monotonic in the proportion of the group. Finally, we highlight factors that motivate the group to help the high-quality platform to win the market. (JEL D85, L14)

Journal

American Economic Journal: MicroeconomicsAmerican Economic Association

Published: May 1, 2022

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