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

Consumer multi-homing is considered to be critical for competition policy regarding digital platforms. To assess the role of multi-homing in competition policy, we embed endogenous homing into a model of oligopolistic competition between two-sided platforms and apply it to mergers and free entry. We find that the required level of merger-specific cost reduction is larger if consumers benefit more from multi-homing and that the equilibrium level of platform entry can be insufficient in the presence of consumer multi-homing. These results contrast the popular belief that multi-homing mitigates the need for stricter competition policy. We also show that reductions to sellers’ benefit from multi-homing reduces entry (i.e., is an effective barrier to entry).