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

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.