When a loss becomes a gain: different effects of substitute versus complementary loss leaders in a multi-sided platform

Abstract

This study examines the effect of the loss leader strategy on profitable products in a multi-sided platform. We assess different effects of loss leaders according to their substitute versus complementary associations with profitable products. We collect a unique dataset containing individual-level transactions and product characteristics and conduct a difference-in-differences analysis along with propensity score matching at the sub-market level. The results suggest that the introduction of a substitute loss leader is negatively associated with the sales of profitable products, while complementary loss leaders have no significant effect on them. We also find that the impact of loss leaders can vary according to the price of related core projects. Our study contributes to the literature on multi-sided platforms by augmenting the current knowledge on product-level association.