Cournot Platform Competition with Mixed-Homing

Abstract

Competition in quantity dates back to Cournot (1838) for traditional markets and Katz and Shapiro (1985) for markets with direct network effects. In this paper, we consider Cournot platform competition in two-sided markets with indirect network effects while allowing for single-, multi-, and mixed-homing allocations. We find that the markup and markdown terms that are typically found in two-sided monopoly pricing are distorted toward zero for (i) greater levels of platform competition and (ii) greater levels of single-homing. Furthermore, we extend our work to allow for a conduct parameter approach to platform competition, in the spirit of the same extension considered in traditional markets, and we develop side specific conduct parameters that depend on the underlying platform conduct as well as the homing allocation. This approach generalizes the monopoly platform Lerner indices from Armstrong (2006) and Weyl (2010) to that of platform competition across general homing allocations.

Keywords: Two-sided markets, conduct parameter, network externality, Lerner index, single-homing, multi-homing, mixed-homing

JEL Classification: D40, L10, L20, L40