Strategic search diversion, product affiliation and platform competition

Andrei Hagiu

Platforms use search diversion in order to trade off total consumer traffic for higher revenues derived by exposing consumers to products other than the ones that best fit their preferences. Our analysis yields three key and novel insights regarding search diversion incentives, which have direct implications for platforms' strategies and empirical predictions. First, platforms that charge positive access fees to consumers have weaker incentives to divert search relative to platforms that cannot (or choose not to) charge such fees. Second, endogenizing the affiliation of products that consumers are not interested in (advertising) leads to stronger incentives to divert search relative to the exogenous affiliation (vertical integration) benchmark, whenever the marginal product yields higher profits per consumer exposure relative to the average product. Third, the effect of platform...