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A novel feature of platforms such as marketplaces and social networks is that nonparticipants may become worse off as others join.
We show that in such settings, rational agents can be induced to
join a platform despite being better off without it—a phenomenon
we call a platform trap. We provide a theory of how platform traps
emerge through one or more of the following additional features:
(i) the ability of the platform to make dynamic price adjustments;
(ii) the interplay between on-platform and off-platform negative
externalities; (iii) favorable equilibrium selection in settings where
participation decisions admit multiple equilibria.
