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8.7.20 - Group Hug: Platform Competition with User-groups, Sarit Markovich, Northwestern University

We consider platform competition on small users and a user-group. One platform enjoys a quality advantage and the other benefits from favorable beliefs. We study whether the group mitigates the users' coordination problem – i.e., joining a low-quality platform because they believe that other users would do the same. We find that a group that can facilitate coordination on the high-quality platform may choose to maintain the dominance of the low-quality one. User's utility is non-monotonic in the proportion of the group. Finally, we highlight factors that motivate the group to help the high-quality platform to win the market.