Consumers value variety in web platforms

The emergence of a handful of dominant digital platforms that effectively face no competition has raised several concerns globally. Such platforms justify their monopoly by citing the “network effect”: they work best when more and more people use them, such as Facebook and WhatsApp. But a new study contradicts this widespread belief.

In a working paper published by the US National Bureau of Economic Research, researchers find that consumers benefit more when multiple platforms compete in giving a service, despite the network effect advantage associated with a single platform.

Chiara Farronato of Harvard Business School and others use a natural experiment, in which they study the market outcome of the acquisition of one online pet-sitting service platform by another. They find no evidence to suggest that the combined platform improved market outcomes more than the sum of the two separate platforms.