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Research Details

Group Hug: Platform Competition with User-groups, AEJ: Micro

Abstract

We consider platform competition in the presence of small users and a usergroup. 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 when the group is sufficiently large to facilitate coordination on the high-quality platform, the group may choose to join the low-quality one. When the group joins the more efficient platform it does not necessarily increase consumer surplus. Specifically, a non-group user benefits from a group with an intermediate size, and prefers a small group over a large group. The utility of a group user is also non-monotonic in the size of the group.

Type

Article

Author(s)

Sarit Markovich, Yaron Yehezkel

Date Published

2020

Citations

Markovich, Sarit, and Yaron Yehezkel. 2020. Group Hug: Platform Competition with User-groups. AEJ: Micro.

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