Platform Encroachment and Own‐Content Bias*

Abstract

This paper presents a model of platform encroachment, in which a platform not only acts as an intermediary between consumers and third‐party sellers, but also sells its first‐party products. When encroaching, the platform chooses between fair and biased search engines. Under the fair search, all products are equally likely to appear in search results, whereas the first‐party product is more likely to appear under biased search. Biased encroachment makes the platform impose a lower commission on sellers, which leads to a lower equilibrium price which consequently attracts more consumers. Increased consumer participation can raise seller participation through indirect network externalities.