More is (sometimes) merrier: Heterogeneity in demand spillovers and competition on a digital platform

Abstract

AbstractResearch SummaryPlatforms create value by connecting users to complementors offering goods or services. Complementors compete on platforms but may also benefit each other by drawing demand to the platform, which may then “spillover” from one complementor to another. This tension raises the question: When are relationships between complementors competitive versus complementary? To help address this question, I apply theory on agglomeration‐driven demand spillovers to examine when on‐platform demand spillovers created by peer product launch are larger versus smaller. Studying the Spotify platform, I find spillovers are larger, and peer album release more beneficial to an artist, when the peer stimulates greater demand expansion, platform‐mediated inter‐complementor proximity is higher, and the artist benefits more from consumer learning. Findings extend literature on on‐platform competition and inform complementor strategy.Managerial SummaryOn digital platforms, complementor product launch may hurt peer performance by causing substitution or may benefit peer performance by drawing demand to the platform which may then “spillover” from the complementor to a peer. Studying the Spotify platform, I examine when such spillovers are larger versus smaller, shedding light on when peer product launch is beneficial versus detrimental for complementors competing on digital platforms. On Spotify, demand spillovers are larger, and peer album release more beneficial to an artist, when peer album release draws listeners to the platform, Spotify recommendations connect the artist to the peer, and the artist reaches new or unfamiliar listeners. The findings suggest that, on platforms featuring demand spillovers, complementors can take strategic actions to leverage spillovers and improve performance.