Platform Oligopoly with Endogenous Homing: Implications for Mergers and Free Entry

Journal of Industrial Economics, Forthcoming

43 Pages Posted: 11 Oct 2021 Last revised: 28 Nov 2022

See all articles by Takanori Adachi

Takanori Adachi

Kyoto University - Graduate School of Management; Kyoto University - Graduate School of Economics

Susumu Sato

Institute of Economic Research, Hitotsubashi University

Mark J. Tremblay

Miami University of Ohio

Date Written: November 26, 2022

Abstract

Consumer multi-homing is critical for competition policy regarding digital platforms. To assess the role of multi-homing, we embed endogenous homing into a model of oligopolistic competition between two-sided platforms and apply it to mergers and free entry. We find that the required merger-specific cost reduction is larger if consumers benefit more from multi-homing and that the equilibrium level of platform entry can be insufficient in the presence of consumer multi-homing. These results contrast the belief that multi-homing mitigates the need for stricter policy. We also show that reductions to sellers’ benefit from multi-homing reduces entry (is an effective entry barrier).

Keywords: Two-sided markets, Indirect network externalities, Multi-homing, Platform mergers, Platform entry

JEL Classification: D40, L10, L20, L40

Suggested Citation

Adachi, Takanori and Sato, Susumu and Tremblay, Mark J., Platform Oligopoly with Endogenous Homing: Implications for Mergers and Free Entry (November 26, 2022). Journal of Industrial Economics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3937682 or http://dx.doi.org/10.2139/ssrn.3937682

Takanori Adachi (Contact Author)

Kyoto University - Graduate School of Management ( email )

36-1 Yoshida-honmachi
Sakyo-ku
Kyoto, 606-8501
Japan

Kyoto University - Graduate School of Economics ( email )

36-1 Yoshida-honmachi
Sakyo-ku
Kyoto, 606-8501
Japan

Susumu Sato

Institute of Economic Research, Hitotsubashi University ( email )

Tokyo
Japan

Mark J. Tremblay

Miami University of Ohio ( email )

Oxford, OH 45056
United States

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