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

Abstract

Consumer multi‐homing is critical for competition policy regarding digital platforms. To assess the role of multi‐homing, 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 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 belief that multi‐homing mitigates the need for stricter policy. We also show that reductions to sellers' benefit from multi‐homing reduces entry (is an effective entry barrier).