Platform competition with partial multi-homing: When both same-side and cross-side network effects exist

Abstract

In platform competition, users get on board because of network effects, and they shape a distinct platform service supply chain (PSSC) structure contingent upon the participation decision of both sides, which can be: both sides single-homing (SH–SH), buyers single-homing and sellers partially multi-homing (SH–MH), buyers partially multi-homing and sellers single-homing (MH–SH), and both sides partially multi-homing (MH–MH). One thing in common is that in either PSSC, there exist both same-side and cross-side network effects among users. Although platform competition in practice can be easily captured, the impact of network effects on platform's pricing decisions in different scenarios may vary. Based on a stylized Hotelling model, this paper incorporates buyers' same-side network effects and both buyers' and sellers' cross-side network effects while considering heterogeneous taste preferences of users on each side. We analyze the two-sided pricing, market share, and platform profit in equilibrium and conduct sensitivity analyses under each scenario supplemented by numerical verification. For each case, the findings are as follows. (1) SH–SH: the equilibrium market shares of both platforms are equal yet unaffected by two-sided pricing. (2) SH–MH: the stronger the sellers' taste preferences and the users' cross-side network effects, the more the sellers prefer single-homing. When sellers' cross-side network effects are stronger than that of buyers, the platform posts a charge to sellers; otherwise, it offers a subsidy. (3) MH–SH: the stronger the buyer's taste preferences and the total network effects, the more the buyers prefer single-homing. Moreover, the buyers' same-side network effects have a non-monotonic impact on their price and a monotonically decreasing impact on the sellers' price. (4) MH–MH: whether equilibrium solutions exist is ambiguous.