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

Mergers among digital platforms are increasingly receiving public and regulatory attention. These mergers may benefit users if network effects from a combined platform are large enough or may hurt users if the two platforms are differentiated and one of the platforms is shut down. 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 geographic variation in pre-merger market shares and a difference -in-differences approach to causally estimate network effects. We find that users of the acquiring platform benefited from the merger because of network effects. However, users of the acquired platform were more likely to exit the market, for reasons including switching costs, coordination failures, and disintermediation. Network effects and attrition offset each other such that at the market level consumers are, on average, not substantially better off with a single combined platform that with two separate ad competing platforms. Our results highlight the importance of platform differentiation even when platforms enjoy network effects, which has important implications for antitrust authorities and platform owners.

Zoom link: https://eur-nl.zoom.us/j/98674514660?pwd=Zkw2cTZiUWhueTVJOXdrVXlmVmJNZz09

Meeting ID: 986 7451 4660