For many products, platforms enable sellers to transact with buyers. We show
that the competitive conditions among sellers shape the market structure in platform
industries. If product market competition is tough, sellers avoid competitors
by joining different platforms. This allows platforms to sustain high fees and explains
why, for example, in some online markets, several homogeneous platforms
segment the market. Instead, if product market competition is soft, agglomeration
on a single platform emerges, and platforms fight for the dominant position. These
insights give rise to novel predictions. For instance, market concentration and fees
are negatively correlated in platform industries, which inverts the standard logic of
competition.
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