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  • Management Science

Dog Eat Dog: Balancing Network Effects and Differentiation in a Digital Platform Merger

By: Chiara Farronato, Jessica Fong and Andrey Fradkin
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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

Platform Differentiation; Digital Platforms; Network Effects; Measurement and Metrics; Mergers and Acquisitions; Outcome or Result

Citation

Farronato, Chiara, Jessica Fong, and Andrey Fradkin. "Dog Eat Dog: Balancing Network Effects and Differentiation in a Digital Platform Merger." Management Science (forthcoming).

About The Author

Chiara Farronato

Technology and Operations Management
→More Publications

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    Consumer Demand with Social Influences: Evidence from an E-Commerce Platform

    By: El Hadi Caoui, Chiara Farronato, John J. Horton and Robert Schultz
    • June 2022
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    The Welfare Effects of Peer Entry in the Accommodation Market: The Case of Airbnb and the Accommodation Industry

    By: Chiara Farronato and Andrey Fradkin
    • March 2022
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    Telepass: From Tolling to Mobility Platform

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More from the Authors
  • Consumer Demand with Social Influences: Evidence from an E-Commerce Platform By: El Hadi Caoui, Chiara Farronato, John J. Horton and Robert Schultz
  • The Welfare Effects of Peer Entry in the Accommodation Market: The Case of Airbnb and the Accommodation Industry By: Chiara Farronato and Andrey Fradkin
  • Telepass: From Tolling to Mobility Platform By: Chiara Farronato
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