Choosing Your Battles: Endogenous Multihoming and Platform Competition

Abstract

We study how digital platforms can choose competitive strategies to influence the number of multihoming consumers. Platforms compete for consumers and advertisers. A platform earns a premium from advertising to singlehomers, as it is a gatekeeper to these consumers. Competitive strategies leading to intense competition on the consumer side reduce profits on that side, but also increase consumer singlehoming and hence market power over advertisers. The size of the singlehoming premium determines where this competitive strategy ‘seesaw’ will end up. We apply this insight to four strategic choices that may increase singlehoming: reducing product differentiation, portfolio diversification through conglomerate mergers, the choice of compatibility and tying.

Keywords: Two-Sided Markets; Internet Platforms; Competitive Strategy; Singlehoming; Multihoming

JEL Classification: D43, L13, L41, L82, L86, M37