American Economic Journal: Microeconomics
no. 4, November 2023
Entry of new firms onto a platform has an ambivalent effect on the incumbent firms operating on the platform: the main tension lies between the negative effects of increased competitive pressure and positive indirect network effects. This paper empirically studies the net effect of these countervailing forces and its dependence on firm quality, using a quasi-exogenous shock on a large online platform. On average, market expansion favors incumbents, though the average effect masks substantial heterogeneity: high-quality incumbents experience significant increases in sales and revenue, whereas low-quality firms perform unambiguously worse. Lastly, the paper explores the main mechanisms and firms' responses.
"Smaller Slices of a Growing Pie: The Effects of Entry in Platform Markets."
American Economic Journal: Microeconomics,
Firm Behavior: Empirical Analysis
Network Formation and Analysis: Theory
Transactional Relationships; Contracts and Reputation; Networks
Information and Product Quality; Standardization and Compatibility
Personal, Professional, and Business Services