Multihoming in Two-Sided Markets: An Empirical Inquiry in the Video Game Console Industry

Abstract

Two-sided markets are composed of platform owners and two distinct user networks that either buy or sell applications for the platform. The authors focus on multihoming—the choice of an agent in a user network to use more than one platform. In the context of the video game console industry, they examine the conditions affecting seller-level multihoming decisions on a given platform. Furthermore, they investigate how platform-level multihoming of applications affects the sales of the platform. The authors show that increased platform-level multihoming of applications hurts platform sales, a finding consistent with literature on brand differentiation, but they also show that this effect vanishes as platforms mature or gain market share. The authors find that platform-level multihoming of applications affects platform sales more strongly than the number of applications. Furthermore, among mature platforms, an increasing market share leads to more seller-level multihoming, while among nascent platforms, seller-level multihoming decreases as platform market share increases. These findings prompt scholars to look beyond network size in analyzing two-sided markets and provide guidance to both (application) sellers and platform owners.