The importance of consumer multihoming (joint purchases) for market performance: Mergers and entry in media markets

• DOI: http://doi.org/10.1111/jems.12300
• Published date: 01 January 2019
• Author: Hans Jarle Kind,Simon P. Anderson,Øystein Foros
• Date: 01 January 2019

Received: 27 August 2018

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Accepted: 28 August 2018

DOI: 10.1111/jems.12300

The importance of consumer multihoming (joint

purchases) for market performance: Mergers and entry

in media markets

Simon P. Anderson

1

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Øystein Foros

2

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Hans Jarle Kind

3

1

Department of Economics, University of

Virginia, Charlottesville, Virginia

2

Department of Business and

Management Science, NHH Norwegian

School of Economics, Bergen, Norway

3

Department of Economics, NHH

Norwegian School of Economics, Bergen,

Norway

Correspondence

Simon P. Anderson, Department of

Economics, University of Virginia,

PO Box: 400182, Charlottesville,

VA 22904‐4182.

Email: sa9w@virginia.edu

Funding information

Norwegian Competition Authority; NSF

Abstract

Consumer “multihoming”(watching two TV channels, or buying two news

magazines) has surprisingly important effects on market equilibrium and

performance in (two‐sided) media markets. We show this by introducing

consumer multihoming and advertising finance into the classic circle model of

product differentiation. When consumers multihome (attend more than one

platform), media platforms can charge only incremental value prices to

advertisers. Entry or merger leaves consumer prices unchanged under

consumer multihoming, but leaves advertiser prices unchanged under single‐

homing: Multihoming flips the side of the market on which platforms compete.

In contrast to standard circle results, equilibrium product variety can be

insufficient under multihoming.

KEYWORDS

incremental value pricing, media market performance, mergers and entry, multihoming consumers,

optimal and equilibrium platform diversity

1

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INTRODUCTION

Readers who subscribe to more than one platform are called multihomers. Multihomers abound for streaming services

like Netflix and HBO. Consumers with a multipurpose tablet like Apple’s iPad also frequently have Amazon’s Kindle e‐

book reader. Facing multihomers may dramatically change platforms’competitive strategies compared to when all

consumers single‐home. If consumers buy either an iPad or a Kindle, their reservation prices are the stand‐alone value

for iPad and Kindle. Amazon’s CEO/founder Jeff Bezos illustrates (Amazon Press release, December 27, 2010):

“We’re seeing that many of the people who are buying Kindles also own an LCD tablet (e.g., an iPad). (…) They report

preferring Kindle for reading…”

Bezos focuses on the value of having a Kindle in addition to an iPad, that is, the value of a Kindle for (potential)

multihomers. The maximal price—the reservation price—these consumers are willing to pay is the incremental value of

a having Kindle. Then the incremental pricing principle applies to firms’price choices: Equilibrium prices are those of

the extra value (Anderson, Foros, & Kind, 2017).

Incremental pricing is also important in ad‐financed media platforms, which operate in two‐sided markets. Such

platforms sell eyeballs to advertisers, and the value of an ad increases with the audience size. But the value also depends

on whether the audience can be reached elsewhere. If they cannot, each platform has exclusive market power in

delivering its consumers to its advertisers. However, if a share of the audience visits two (or more) platforms, the

J Econ Manage Strat. 2019;28:125–137. wileyonlinelibrary.com/journal/jems © 2019 Wiley Periodicals, Inc.

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ORIGINAL ARTICLE