Content Provision and Multi-Homing

Type/nr A08/15
Skrevet av Armando J. Garcia Pires

We analyze the effects of multi-homing consumers on content provision by media firms. We develop a model where media firms compete on content provision and advertising revenues, and consumers enjoy network effects from consuming content that other consumers also consume. Media firms have to choose if they are single-content or multi-content, and in the latter case how much content to offer. Competition for advertising revenues gives a two-sided market nature to our model, since advertisers prefer media firms with more demand. As such, media firms would like to increase demand to increase advertising revenues. Offering more content increases demand because more consumers can consume their ideal variety without paying transport costs. We show that, relatively to the case with single-homing consumers, media firms provide less content with multi-homing consumers. The reason is that with multi-homing consumers, competition between media firms is weakened. Multi-homing consumers consume from all media firms, and therefore media firms have lower incentives to provide content to attract demand, and advertising revenues. As a result, social welfare tends to be higher under the multi-homing case relatively to the single-homing case, when the advertising market is large, and when the network effects are large relative to the intensity of consumers’ preferences.


Språk Skrevet på engelsk