PLATFORM COMPETITION WITH ENDOGENOUS HOMING |
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Authors: | Thomas D Jeitschko Mark J Tremblay |
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Institution: | 1. Michigan State University, U.S.A.;2. Miami University, U.S.A. |
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Abstract: | We consider two-sided markets in which consumers and firms endogenously determine whether they single-home, multi-home, or exit the market. We find that the competitive bottleneck allocation in which consumers single-home and firms multi-home is always an equilibrium. In addition, we find equilibria with multi-homing and single-homing on each side of the market. 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 can induce straddle pricing which deters price undercutting between platforms. |
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