Homing and platform responses to entry: Historical evidence from the U.S. newspaper industry

Abstract

AbstractResearch summaryWe examine how heterogeneity in customers' tendencies to single‐home or multi‐home affects a platform's competitive responses to new entrants in the market. We first develop a formal model to generate predictions about how a platform will respond. We then empirically test it, leveraging a historical setting: TV station entry into local U.S. newspaper markets from 1945 to 1963. A notable feature of this setting is a quasi‐natural experiment: the staggered geographic and temporal rollout of TV stations that was temporarily halted during the Korean War. We find that platform firms indeed take their customers' homing tendencies into account in their responses to competition: after a TV station enters the newspaper market, newspaper firms with more single‐homing consumers had lower subscription prices, circulations, and advertising rates.Managerial summaryThe theoretical and empirical results in our paper suggest that platform firms operating in multi‐sided market settings need to consider their customers' single‐homing and multi‐homing tendencies. Heterogeneity in these tendencies is an important demand‐side factor to consider when formulating responses to a competitor's entry.