Group Hug: Platform Competition with User-Groups
- American Economic Journal: Microeconomics (Forthcoming)
We consider platform competition on 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. User’s 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.
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