Platform entry and homing as competitive strategies under cross-sided network effects

In a competitive environment, determining when to enter the market and what homing policies should be adopted are crucial strategic decisions for platform-based businesses. In this study, we investigate the interactions between two platforms competing in two-sided markets with cross-sided network effects and determine their prices under different entry and homing strategies. We derive the equilibrium demands of two-sided markets for platforms and the equilibrium prices for two competing platforms. We further conduct a comparative analysis among scenarios with different combinations of homing and entry strategies. We find that early-entry platforms will preserve high margins in large early markets, where fierce price competition occurs once their rivals enter these markets. However, early entry is not always beneficial for platforms because the market-cannibalization effect emerges in the subsequent period. Furthermore, this effect will be amplified by the platforms' homing and entry strategies. In addition, cross-sided network effects lead buyers, sellers, and platforms to prefer a multi-homing policy, which is beneficial for society as a whole. Managerial insights are also provided for platform-based businesses.

Automated summary

This study investigates the interactions between two platforms competing in two-sided markets with cross-sided network effects and determines their prices under different entry and homing strategies. Early-entry platforms will preserve high margins in large early markets, but market-cannibalization effect may impact platform profitability. Cross-sided network effects lead to a preference for multi-homing policy, beneficial for society as a whole.