Platform Competition with Endogenous Homing
43 Pages Posted: 25 May 2014 Last revised: 4 Apr 2019
There are 2 versions of this paper
Platform Competition with Endogenous Homing
Platform Competition with Endogenous Homing
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: Suggested Citation
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