The Digital Initiative Presents

You’ve got a friend: Indirect network effects and competition in platform marketplaces

11:00 am November 12, 2020

Online

Platform markets display unique competitive dynamics due to the presence of the competing forces of substitution and indirect network effects. A priori, it is unclear whether or when the positive spillovers from indirect network effects outweigh the negative effects of substitution. Using the music streaming industry as a setting, I study how competitor demand expansion affects provider performance on the Spotify music streaming platform and how competitor popularity moderates this effect. Using two distinct demand shocks to competitors — competitor album releases and competitor deaths — I find that, on average, positive spillovers from indirect network effects outweigh the negative effects of substitution on the platform, and competitor expansion has a modest positive effect on provider performance. However, the effect differs greatly depending on competitor popularity. Demand shocks to popular competitors benefit providers, while those to niche competitors do not. These results generate insights on the trade-offs between indirect network effects and substitution and add nuance to our knowledge of competitive dynamics on platform markets.

This event is open to faculty, doctoral students, academic researchers, and graduate students.

You’ve got a friend: Indirect network effects and competition in platform marketplaces
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