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

30 Pages Posted: 11 Oct 2021

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: October 6, 2021

Abstract

Consumer multi-homing is considered to be critical for competition policy regarding digital platforms. To assess the role of consumer multi-homing in competition policy toward platforms, we develop a new framework that embeds consumer multi-homing in two-sided market into the otherwise standard model of Cournot oligopoly and apply it to free entry and mergers. We find that the equilibrium level of platform entry is insufficient given the presence of consumer multi-homing, and a required level of merger-specific cost reduction is larger if the fraction of multi-homing consumers is larger. These results together provide a caution to the popular belief that multi-homing mitigates the need for a strict implementation of competition policy.

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

JEL Classification: D40, L10, L20, L40

Suggested Citation

Adachi, Takanori and Sato, Susumu and Tremblay, Mark J., Platform Oligopoly with Endogenous Homing: Implications for Free Entry and Mergers (October 6, 2021). 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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