Cournot Platform Competition

Firms in traditional markets often compete in output à la Cournot. In this paper, we consider Cournot competition between platforms in a two-sided market. We find that the markup and markdown terms are distorted toward zero for greater levels of platform competition and for greater levels of single-homing. Allowing for any homing allocation, we also find that both the level of platform competition and agent homing decisions determine side specific conduct parameters and, similar to the traditional market, we show that these side specific conduct parameters can be derived from elasticity-adjusted Lerner indices. Finally, we argue that the traditional wisdom that platform competition need not increase welfare crucially depends on the structure of homing decisions, suggesting that attention should be paid to homing allocations in evaluating platform mergers