Search diversion and platform competition |
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| Institution: | 1. Harvard University (HBS Strategy Unit), United States;2. Toulouse School of Economics (IDEI & CNRS-GREMAQ), France;1. Department of Economics, University of Colorado at Boulder, 256 UCB, Boulder, CO 80309, USA;2. Kelley School of Business, Indiana University, 1309 E. Tenth Street, Bloomington, IN 47405, USA;3. ICF International, 19/F Heng Shan Centre, 145 Queen''s Road East, Wan Chai, Hong Kong;1. Université Paris Dauphine and Ecole Polytechnique, France;2. EQUIPPE Faculté des Sciences Economiques et Sociales de Lille and MINES ParisTech, PSL — Research University, CERNA — Center for Industrial Economics, France;1. Université catholique de Louvain, CORE/LIDAM and Louvain School of Management, Louvain la Neuve, B-1348, Belgium;2. Department of Economics and MaCCI, University of Mannheim, Mannheim, 68131, Germany;1. Department of Economics and Lincoln College, University of Oxford, United Kingdom;2. Department of Economics, University of California, San Diego, USA |
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| Abstract: | Platforms use search diversion in order to trade off total consumer traffic for higher revenues derived by exposing consumers to unsolicited products (e.g. advertising). We show that competition between platforms leads to lower equilibrium levels of search diversion relative to a monopoly platform when the intensity of competition is high. On the other hand, if there is only mild competition, then competing platforms induce more search diversion relative to a platform monopolist.When platforms charge consumers fixed access fees, all equilibrium levels of search diversion under platform competition are equal to the monopoly level, irrespective of the nature of competition. Furthermore, relative to platforms that cannot charge such fees, platforms that charge positive (negative) access fees to consumers have weaker (stronger) incentives to divert search. |
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