The Interdependency Between New Entrant Supply and Incumbent Activity on Digital Platforms – Evidence From the Hospitality Industry

Platforms such as Airbnb or Uber expand the supply of alternative products and services by enabling new providers to enter established markets, which in turn poses a significant threat to incumbents. The authors argue that, besides the direct competitive effect, these platforms also have a second, more indirect effect on incumbents. By pushing incumbents to look for additional ways to sell their own products in the face of increasing competition, and shifting consumer preferences towards transacting through platforms, they push incumbent firms to do more business on platforms as well. This, in turn, has implications for incumbents, particularly those that have strong marketing and sales capabilities. These incumbents will be confronted with more head-to-head competition and see the competitive advantage from their strong marketing and sales capabilities erode, which ultimately has a detrimental effect on their performance. Using data from the hotel industry, the authors find supporting evidence for this process. More generally, their study highlights interdependencies between different types of platforms and sheds light on a process through which incumbents may be pushed to adopt substitutes for their own marketing and sales capabilities. The authors discuss the broader implications for platform research, managers and policymakers.