Partial Multihoming in Two-sided Markets

Abstract

In this paper we explore the possibility of "partial-multihoming" in a two-sided market where a subset of agents, on one or both side(s), may multihome in equilibrium. We consider a model in which platforms are spatially differentiated and on each side of the market there are two type of agents, low type and high type agents, that differ only by their preferences over the network benefits. We derive under which conditions of network preferences, an equilibrium with partial multihoming on both sides exists. We show that for such an equilibrium to exist, the network benefits of high type agents must be sufficiently higher than transportation costs. Furthermore, the proportions of agents who multihome on both sides must be sufficiently small. Finally, we show that independently of the degree of multihoming on the other side of the market, agents in each group face higher prices when there is partial multihoming on their side than when there is singlehoming.Two-sided markets, network externalities, heterogeneous agents.