Interoperability between Ad-Financed Platforms with Endogenous Multi-Homing

Marc Bourreau, Adrien Raizonville and Guillaume Thébaudin

No 10332, CESifo Working Paper Series from CESifo

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.

Keywords: interoperability; platform competition; multi-homing; advertising (search for similar items in EconPapers)
JEL-codes: L13 L15 L86 (search for similar items in EconPapers)
Date: 2023
New Economics Papers: this item is included in nep-com, nep-gth, nep-ind, nep-mic, nep-pay and nep-reg
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_10332

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