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Competing By Restricting Choice: The Case Of Search Platforms, Hanna Halaburda, Mikolaj Jan Piskorski, Pinar Yildirim
Competing By Restricting Choice: The Case Of Search Platforms, Hanna Halaburda, Mikolaj Jan Piskorski, Pinar Yildirim
Hanna Halaburda
We show that a two-sided platform can successfully compete by limiting the choice of potential matches it offers to its customers while charging higher prices than platforms with unrestricted choice. Starting from micro-foundations, we derive the strength and direction of network effect, and find that increasing the number of potential matches not only has a positive effect due to larger choice, but also a negative effect due to competition between agents on the same side. Agents with heterogeneous outside options resolve the trade-off between the two effects differently. For agents with a lower outside option, the competitive effect is stronger …