Article | International Journal of Industrial Organization | March 2014

Search Diversion and Platform Competition

by Andrei Hagiu and Bruno Jullien

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.

Keywords: market intermediation; search; Two-Sided Markets; platform design; platform competition; Competition; Two-Sided Platforms;

Citation:

Hagiu, Andrei, and Bruno Jullien. "Search Diversion and Platform Competition." International Journal of Industrial Organization 33 (March 2014): 48–60.