PLATFORM COMPETITION WITH ENDOGENOUS HOMING

We consider two-sided markets in which consumers and firms endogenously determine whether they singlehome, 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...

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Bibliographic Details
Published in:International economic review (Philadelphia) 2020-08, Vol.61 (3), p.1281-1305
Main Authors: Jeitschko, Thomas D., Tremblay, Mark J.
Format: Article
Language:English
Subjects:
Consumers
Economic models
Economic theory
Endogenous
Housing prices
Markets
Prices
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Summary:We consider two-sided markets in which consumers and firms endogenously determine whether they singlehome, 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.
ISSN:0020-6598
1468-2354
DOI:10.1111/iere.12457