Andrei Hagiu (MIT Sloan)

“Platforms and the exploration of new products”

abstract

The introduction of new but risky products and sellers are key to the growth of platforms. Exploration by current buyers helps future buyers better value these products and sellers. This externality across buyers raises the possibility that there may be too little exploration in the absence of any platform intervention. On the other hand, where sellers have market power and so price strategically, we show there may actually be excessive exploration from the platform’s perspective. Thus, we explain why platforms, if anything, seem to steer consumers towards established (i.e. safe) products and sellers.