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Article | Management Science

Product Quality and Entering Through Tying: Experimental Evidence

by Hyunjin Kim and Michael Luca

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Abstract

Dominant platform businesses often develop products in adjacent markets to complement their core business. One common approach used to gain traction in these adjacent markets has been to pursue a tying strategy. For example, Microsoft pre-installed Internet Explorer into Windows, and Apple set Apple Maps as the iOS default. Policymakers have raised concerns that dominant platforms may be leveraging their market power to gain traction for lower quality products when they use a tying strategy. In this paper, we empirically explore this question by examining Google’s decision to tie its new reviews product to its search engine. We experimentally vary the reviews displayed above Google’s organic search results to show either exclusively Google reviews (Google’s current tying strategy) or reviews from multiple platforms determined to be the best-performing by Google’s own organic search algorithm. We find that users prefer the version that does not exclude competitor reviews. Furthermore, looking at observational data on user traffic to Yelp from search engines, we find that Google’s exclusion of downstream competitors may have been effective. The share of Yelp’s traffic coming from Google has declined over this period, relative to traffic from Bing and Yahoo (which do not exclude other companies’ reviews), and Google reviews has grown quicker than Yelp and TripAdvisor during the period in which they excluded these (and other) reviews providers. Overall, these results shed light on platform strategy: tying has the potential to facilitate entry in complementary markets, even when the tied product is of worse quality than competitors.

Keywords: tying; platform strategy; google; Product; Quality; Market Platforms; Strategy; Market Entry and Exit;

Format: Print Find at HarvardPurchase

Citation:

Kim, Hyunjin, and Michael Luca. "Product Quality and Entering Through Tying: Experimental Evidence." Management Science 65, no. 2 (February 2019): 596–603.

About the Authors

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Michael Luca
Lee J. Styslinger III Associate Professor of Business Administration
Negotiation, Organizations & Markets

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More from these Authors

  • Article | Harvard Business Review | October 14, 2019

    Designing Better Online Review Systems

    Geoff Donaker, Hyunjin Kim, Michael Luca, Geoff Donaker, Hyunjin Kim and Michael Luca

    Online reviews are transforming the way consumers choose products and services of all sorts. We turn to TripAdvisor to plan a vacation, Zocdoc to find a doctor, and Yelp to choose a new restaurant. Reviews can create value for buyers and sellers alike, but only if they attain a critical level of quantity and quality. The authors describe principles for setting the incentives, design choices, and rules that help review platforms thrive.
    To address a shortage of reviews, companies can seed them by hiring reviewers or drawing reviews from other platforms, offering incentives, or pooling products. To address selection bias, they can require reviews, allow private comments, and design prompts carefully. To combat fraudulent and strategic reviews, they can set rules for reviewers and call in moderators—whether employees, the community, or algorithms.

    Keywords: reviews; Web Sites; Design; Quality; Reputation;

    Citation:

    Donaker, Geoff, Hyunjin Kim, and Michael Luca. "Designing Better Online Review Systems." Harvard Business Review 97, no. 6 (November–December 2019): 122–129.  View Details
    CiteView DetailsFind at HarvardFind at Harvard Register to Read Register to Read Related
  • Article | Harvard Business Review | October 14, 2019

    Designing Better Online Review Systems

    Geoff Donaker, Hyunjin Kim, Michael Luca, Geoff Donaker, Hyunjin Kim and Michael Luca

    Online reviews are transforming the way consumers choose products and services of all sorts. We turn to TripAdvisor to plan a vacation, Zocdoc to find a doctor, and Yelp to choose a new restaurant. Reviews can create value for buyers and sellers alike, but only if they attain a critical level of quantity and quality. The authors describe principles for setting the incentives, design choices, and rules that help review platforms thrive.
    To address a shortage of reviews, companies can seed them by hiring reviewers or drawing reviews from other platforms, offering incentives, or pooling products. To address selection bias, they can require reviews, allow private comments, and design prompts carefully. To combat fraudulent and strategic reviews, they can set rules for reviewers and call in moderators—whether employees, the community, or algorithms.

    Keywords: reviews; Web Sites; Design; Quality; Reputation;

    Citation:

    Donaker, Geoff, Hyunjin Kim, and Michael Luca. "Designing Better Online Review Systems." Harvard Business Review 97, no. 6 (November–December 2019): 122–129.  View Details
    CiteView DetailsFind at HarvardFind at Harvard Register to Read Register to Read Related
  • Case | HBS Case Collection | December 2018

    Creating the French Behavioral Insights Team

    Michael Luca, Ariella Kristal and Emilie Billaud

    This case explores how neuroscientist Mariam Chammat helped set up the first behavioral insights team at the center of the French government, and encouraged French administrations to innovate and create policy initiatives based on psychological theories of influence and persuasion. Students are asked to assess 35 projects ripe for behavioral intervention and pick the winning proposals.

    Keywords: choice architecture; Behavioral economics; experiments; Negotiation; Decision Making; Economics; Taxation; Entrepreneurship; Consumer Behavior; Public Administration Industry; Europe; France; Paris;

    Citation:

    Luca, Michael, Ariella Kristal, and Emilie Billaud. "Creating the French Behavioral Insights Team." Harvard Business School Case 919-015, December 2018.  View Details
    CiteView DetailsEducators Related
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