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  • 2020
  • Working Paper

Dog Eat Dog: Measuring Network Effects Using a Digital Platform Merger

By: Chiara Farronato, Jessica Fong and Andrey Fradkin
  • Format:Print
  • | Language:English
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Abstract

Digital platforms are increasingly the subject of regulatory scrutiny. In comparison to multiple competitors, a single platform may increase consumer welfare if network effects are large or may decrease welfare due to higher prices or reduction in platform variety. We study the net effect of this trade-off in the context of the merger between the two largest platforms for pet-sitting services. We exploit variation in pre-merger market shares and a difference-in-differences approach to causally estimate network effects at the platform and market level. We find that consumers are, on average, not substantially better off with a single combined platform than with two separate and competing platforms. On one hand, users of the acquiring platform benefited from the merger because of network effects. On the other hand, users of the acquired platform experienced worse outcomes. Our results highlight the importance of platform differentiation even when platforms enjoy network effects.

Keywords

Digital Platforms; Market Platforms; Network Effects; Measurement And Metrics

Citation

Farronato, Chiara, Jessica Fong, and Andrey Fradkin. "Dog Eat Dog: Measuring Network Effects Using a Digital Platform Merger." NBER Working Paper Series, No. 28047, November 2020.
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About The Author

Chiara Farronato

Technology and Operations Management
→More Publications

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    By: Chiara Farronato, Marco Iansiti, Marcin Bartosiak, Stefano Denicolai, Luca Ferretti and Roberto Fontana
More from the Authors
  • Comparing Two Groups: Sampling and t-Testing By: Iavor I Bojinov, Chiara Farronato, Yael Grushka-Cockayne, Willy C. Shih and Michael W. Toffel
  • Digital Platforms: An Introduction By: Chiara Farronato, Michael W. Toffel and Feng Zhu
  • How to Get People to Actually Use Contact-Tracing Apps By: Chiara Farronato, Marco Iansiti, Marcin Bartosiak, Stefano Denicolai, Luca Ferretti and Roberto Fontana
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