Search diversion and platform competition
By: Andrei Hagiu, Bruno Jullien
Contributors: Jullien, Bruno; Harvard Business School
Series: Working paper / Harvard Business School -- 11-124; Working paper (Harvard Business School) -- 11-124
Publisher: Harvard Business School
Published: 2013
Place of publication: Boston]
Language: eng
Number of pages: 55
Work titles: Strategic search diversion, product affiliation and platform competition
Description: Platforms use search diversion in order to trade off total consumer traffic for higher revenues derived by exposing consumers to unsolicited products (e.g. advertising). We show that the entry of a platform competitor leads to higher (lower) equilibrium levels of search diversion relative to a monopoly platform when the degree of horizontal differentiation between platforms is intermediate (low). On the other hand, more intense competition between active platforms (i.e. less differentiation) leads to less search diversion. When platforms charge consumers fixed access fees, all equilibrium levels of search diversion under platform competition are equal to the monopoly level, irrespective of the nature of competition. Furthermore, platforms that charge positive (negative) access fees to consumers have weaker (stronger) incentives to divert search relative to platforms that cannot charge such fees. Finally, endogenous affiliation on both sides (consumers and advertising) leads to stronger incentives to divert search relative to the one-sided exogenous affiliation (vertical integration) benchmark, whenever the marginal advertiser derives higher profits per consumer exposure relative to the average advertiser.
Notes: "May 2011. (Revised September 2013.)"--Publisher's Web site.

Revision of Strategic search diversion, product affiliation and platform competition.

Includes bibliographical references (pages 31-33).