Dog Eat Dog: Measuring Network Effects Using a Digital Platform Merger / Chiara Farronato, Jessica Fong, Andrey Fradkin.

Format:

Book

Author/Creator:

Farronato, Chiara.

Contributor:

National Bureau of Economic Research.

Fong, Jessica.

Fradkin, Andrey.

Series:

Working Paper Series (National Bureau of Economic Research) no. w28047.

NBER working paper series no. w28047

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2020.

Summary:

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.

Notes:

Print version record

November 2020.