Platform Competition: The Role of Multi-homing and Complementors

Abstract

In this paper we present a model of platform competition in which two firms offer horizontally differentiated platforms and a group of complementors offers products that are complementary to each platform. Consumers can buy either or both platforms (single- or multihoming) and complementors can produce for either or both platforms (single- or multi-production). We first characterize the pricing structure and find that, in equilibrium, consumers are more likely to multihome as the differentiation of platforms decreases or as the number of complementors for either platform increases. We show that the platform and its complementors always benefit from an increase in the number of complementors in their own platform. When single-homing arises in equilibrium, the platform and its complementors suffer from an increase in the number of complementors in the rival platform. We also study the incentives of the platform to integrate with its complementors, to charge them a royalty or give a subsidy, and to sell its own complementary products to the rival platform.