Platform Competition with Endogenous Homing

43 Pages Posted: 25 May 2014 Last revised: 4 Apr 2019

See all articles by Thomas D. Jeitschko

Thomas D. Jeitschko

Michigan State University - Department of Economics

Mark J. Tremblay

Miami University

Multiple version iconThere are 2 versions of this paper

Date Written: April 2, 2019

Abstract

We consider two-sided markets in which consumers and firms endogenously determine whether they single-home (patronize only one platform), or multi-home (join competing platforms). We find that the standard competitive bottleneck allocation in which all consumers single-home and all firms multi-home is always an equilibrium. In addition, we find allocations with a mix of multi-homing and single-homing on both sides of the market (akin to game consoles, ride- and home-sharing services, and video streaming platforms). However, unlike the standard pricing result where the side that multi-homes faces higher prices, we find that lower prices coincide with multi-homing: agents find multi-homing more attractive when faced with lower prices. We also show that endogenous homing induces a new platform pricing strategy, straddle pricing, which deters price undercutting between platforms.

Keywords: two-sided markets, platforms, platform competition, multi-homing, single-homing, endogenous homing decisions, network effects, smartphones, video games and game consoles, rideshare services

JEL Classification: L14, L22, D40, L13

Suggested Citation

Jeitschko, Thomas D. and Tremblay, Mark, Platform Competition with Endogenous Homing (April 2, 2019). Available at SSRN: https://ssrn.com/abstract=2441190 or http://dx.doi.org/10.2139/ssrn.2441190

Thomas D. Jeitschko

Michigan State University - Department of Economics ( email )

110 Marshall-Adams Hall
East Lansing, MI 48824
United States
517-355-8302 (Phone)
517-432-1068 (Fax)

HOME PAGE: http://www.msu.edu/~jeitschk/

Mark Tremblay (Contact Author)

Miami University ( email )

208 Laws Hall
Oxford, OH 45056
United States

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