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Interoperability between Ad-Financed Platforms with Endogenous Multi-Homing

Author

Listed:
  • Marc Bourreau
  • Adrien Raizonville
  • Guillaume Thébaudin

Abstract

Platform interoperability is considered a powerful tool to promote competition in digital markets when network effects are at play. We study the effect of interoperability on competition between two ad-financed platforms, allowing for endogenous multi-homing of consumers. When the platforms are symmetric and decide non-cooperatively on their level of interoperability, interoperability emerges in equilibrium if the value of multi-homers relative to single-homers is sufficiently low for advertisers. From a welfare perspective, the equilibrium level of interoperability can be either too low or too high. When one (“large”) platform has an installed base of customers, its incentive to make its services interoperable is lower than for the other, smaller platform. However, mandating interoperability between the asymmetric platforms is not always socially optimal.

Suggested Citation

  • Marc Bourreau & Adrien Raizonville & Guillaume Thébaudin, 2023. "Interoperability between Ad-Financed Platforms with Endogenous Multi-Homing," CESifo Working Paper Series 10332, CESifo.
    • Handle: RePEc:ces:ceswps:_10332
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    File URL: https://www.cesifo.org/DocDL/cesifo1_wp10332.pdf
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    References listed on IDEAS

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    1. Jiawei Chen & Ulrich Doraszelski & Joseph E. Harrington, Jr., 2009. "Avoiding market dominance: product compatibility in markets with network effects," RAND Journal of Economics, RAND Corporation, vol. 40(3), pages 455-485, September.
    2. Katz, Michael L & Shapiro, Carl, 1985. "Network Externalities, Competition, and Compatibility," American Economic Review, American Economic Association, vol. 75(3), pages 424-440, June.
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    More about this item

    Keywords

    interoperability; platform competition; multi-homing; advertising;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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