Platform Encroachment and Own-Content Bias

This paper presents a model in which a monopoly platform not only operates a marketplace intermediating direct transactions between consumers and third-party sellers, but also sells its first-party products at the marketplace, which is designated herein as platform encroachment. When encroaching, the platform operator chooses between fair and biased search engines. Under the fair search, all first-party and third-party products are equally likely to appear in the search result of every consumer. In contrast, under biased search, the first-party product is more likely to appear (i.e., own-content biases). The latter biased encroachment is shown to make the platform impose a lower commission on third-party sellers, which leads to a lower equilibrium price which consequently attracts more consumers. Additionally, increased consumer participation can raise seller participation through indirect network externalities when consumers have a high search cost. Therefore, own-content biases are not necessarily anti-competitive, but can rather be pro-competitive