We study a platform’s incentives to delist IP-infringing products and the effects
of holding the platform liable for the presence of such products on innovation and
consumer welfare. The impact of platform liability on innovation can be either
positive or negative and critically depends on the existence and nature of cross-group
network effects. A necessary but not sufficient condition for platform liability to
benefit consumers is that it leads to more innovation. We consider various extensions
that allow us to identify additional forces that strengthen or weaken the desirability
of liability for innovators and consumers.