Friends in High Places: Demand Spillovers and Competition on Digital Platforms

82 Pages Posted: 12 May 2021 Last revised: 13 Oct 2021

See all articles by Manav Raj

Manav Raj

New York University (NYU) - Leonard N. Stern School of Business

Date Written: October 1, 2021

Abstract

By lowering transaction costs, digital platforms may foster complementary dynamics across offerings that compete in other settings. In a study of the Spotify music streaming platform, I study the effect of peer expansion on provider performance and consider when demand spillovers outweigh substitution across providers on a digital platform. I find that, on average, increases in peer demand improve provider performance on the Spotify platform, however provider characteristics moderate this effect. Expansion by popular peers improves provider performance, while expansion by niche peers does not generate sufficient spillovers to overcome the negative effects of substitution. I explore how platform recommendation systems magnify spillovers and consider the strategic implications of these market dynamics. In doing so, I highlight that digital platforms alter how firms compete and whom they compete with.

Keywords: platforms, competition, spillovers, digital markets, media economics

Suggested Citation

Raj, Manav, Friends in High Places: Demand Spillovers and Competition on Digital Platforms (October 1, 2021). NYU Stern School of Business, Available at SSRN: https://ssrn.com/abstract=3843249 or http://dx.doi.org/10.2139/ssrn.3843249

Manav Raj (Contact Author)

New York University (NYU) - Leonard N. Stern School of Business ( email )

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