Demand Spillovers in Digital Platforms
When it comes to adding competitors, can more be merrier?
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By Manav Raj.
Digital platforms have revolutionized markets by connecting end users to a vast array of complementors offering goods or services. Whether it’s Spotify for music, Amazon for books, or Netflix for movies, these platforms don’t just connect consumers to products—they also shape how businesses interact with one another.
Traditionally, competition among businesses has been viewed as zero-sum: a rival’s success comes at a focal firm’s expense. But on platforms, that may not always be the case. A competitor’s success—like a new product launch—can drive demand for you, too. My research, published in the Strategic Management Journal, sheds light on this phenomenon by studying the Spotify music streaming platform. The findings reveal when competitors help versus hurt and offer actionable strategies for businesses looking to succeed on platforms.
Competition and Demand Spillovers
On platforms like Spotify, artists serving as complementors on the platform compete for listeners, but they collectively draw listeners to the platform. If, for example, Taylor Swift releases a new album, fans flock to Spotify to listen. Accordingly, while other artists on the platform may experience a decrease in their performance as some listeners switch to listen to Swift’s new album, they may also benefit as the album increases total consumption on the platform.
When a major artist releases an album, related artists see their listenership rise by up to 3% and their overall popularity increase by 1–2%.
In my research, I consider how these competing effects coexist and examine when peer activity can benefit vs. hurt a complementor on a platform. Using daily data on nearly 10,000 artists from 2016 to 2019, I analyzed the impact of album releases by related artists on a focal artist’s streaming performance on Spotify. While on average, I find that album release by a related artist has a positive effect on a focal artist’s performance, this effect is not uniform:
Big Players Create Positive Spillovers: Big artists like Beyoncé or Drake draw massive attention, benefiting related artists the most. For example, when a major artist releases an album, related artists see their listenership rise by up to 3% and their overall popularity increase by 1–2%. In contrast, low-performing artists don’t create these spillovers; their releases often have little effect or even hurt related artists.
The Biggest Gains Go to Smaller Artists: New and lower-performing artists see the largest benefits. Why? Spillovers help these artists connect with new listeners who would not have discovered them otherwise. If a high-performing artist like Taylor Swift releases an album, smaller or international artists linked to her profile can experience a surge in attention. On the other hand, because an artist like Taylor Swift is already so well-known, she is unlikely to benefit as much from new listeners learning about her.
Platform Tools Matter: Spotify actively shapes spillovers through its recommendation system. The platform suggests “related artists” on every artist’s page, influencing how listeners discover new music. My findings show that artists with strong connections to high performers—particularly through Spotify’s “Fans Also Like” feature—benefit significantly more.
These effects can be sizable, particularly for the smaller artists that can benefit from demand spillovers. For example, the release of an album by a superstar related artist increases the number of unique listeners by 8.2% for a less popular artist, an increase that is even larger than the one experienced when the artist releases an album themselves.
Album releases by low-performing artists do not generate meaningful spillovers and can even harm related artists’ performance due to substitution effects.
Why Spillovers Happen
To understand why these spillovers occur, it helps to think of platforms as digital versions of shopping malls or urban clusters. In more traditional market settings, we know that agglomeration or co-location of similar establishments can increase consumption by reducing consumer search costs. For example, in a mall, flagship stores (like Apple or Macy’s) draw foot traffic, benefiting smaller stores nearby. Similarly, many localities feature “motor miles” or “auto rows” where car dealerships cluster together to allow for one-stop shopping.
Platforms serve a similar function in aggregating demand, creating a digital version of co-location. However, relative to offline agglomeration, platforms can take things a step further by utilizing digital goods, innovative business models, and sophisticated search and recommendation tools to lower the cost of search and consumption even more. For example, tools like “recommended products” (Amazon), “you might like” suggestions (YouTube), and playlists (Spotify) amplify demand for complementary goods. These strategies are oftentimes intentional, as platforms seek to shape consumption across the market and derive value from stimulating consumer discovery and exploration.
About the research: In a sample of nearly 10,000 artists on Spotify from 2016 to 2019, I found that album releases by high-performing artists generate significant positive demand spillovers for related artists, increasing their listenership and popularity, particularly when: 1) the releasing artist attracts substantial new demand to the platform; 2) Spotify's recommendation algorithms facilitate attention transfer to related artists; and 3) the related artists are lesser-known, newer entrants, or serve unfamiliar audiences such as international listeners. Conversely, album releases by low-performing artists do not generate meaningful spillovers and can even harm related artists’ performance due to substitution effects.
Strategic Implications
For complementors operating on platforms, these findings inform a number of dimensions of complementor strategy:
Product launch timing: In my study, I find evidence that, due to the presence of spillovers, complementors can benefit from releasing products on the same day as similar artists to ride the wave of demand. This runs counter to traditional advice, which suggests avoiding direct competition. Even in the music industry, the prevailing assumption in the past is that releasing an album on the same day as a competitor can hurt your performance. For example, when Taylor Swift returned her music to Spotify on the same day as Katy Perry’s album was released in 2017, it was widely viewed as a salvo in a long-running feud between the two artists. However, based on the findings of my research, if anything Swift’s action likely benefitted Perry rather than hurting her.
Increase proximity to peers that create spillovers: Position your offerings to appear alongside high performers. For musical artists, this might involve creating music that closely resembles that produced by high performers. For sellers on Amazon, it could mean bundling products or aligning keywords with popular items.
Use platforms to stimulate discovery: Platforms enable connections to unfamiliar audiences. For smaller businesses, the goal is to be visible to users drawn in by major players. Collaborating with the platform (e.g., featuring in curated playlists or recommendations) or with more distant peers can increase the potential to find a new audience.
These strategies are especially relevant for new entrants and smaller players. By strategically piggybacking on high performers, they may be able to find new audiences and improve performance.
From a policy perspective, these findings challenge traditional views of competition. Regulators often assume that dominant players on platforms harm smaller businesses. But platforms can foster complementary relationships, where large players benefit the ecosystem by driving demand for smaller ones. That said, the role of the platform organizer is critical. Tools like recommendation algorithms determine who benefits from spillovers. Policymakers should consider how platforms use these tools to shape competition and whether they promote fairness and diversity.
More Can Be Merrier
In the platform economy, competition isn’t always zero-sum. On Spotify and similar platforms, popular and high-performing complementors can benefit smaller ones by creating demand spillovers. By understanding and strategically leveraging demand spillovers, businesses on platforms can transform competitors into allies.
In the digital age, more can, indeed, be merrier.
This blog is based on Manav’s research, which is published in the Strategic Management Journal and is included in the Platform Papers references dashboard:
Raj, M. (2024). More is (Sometimes) Merrier: Heterogeneity in Demand Spillovers and Competition on a Digital Platform. Strategic Management Journal, 45(13), 2611-2641.
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