Estimating Demand with Multi-Homing in Two-Sided Markets

Abstract

We empirically investigate the relevance of multi-homing in two-sided markets. First, we build a micro-founded structural econometric model that encompasses demand for differentiated products and allows for multi-homing on both sides of the market. We then use an original dataset on the Italian daily newspaper market that includes information on double-homing by readers to estimate readers' and advertisers' demand. The results show that an econometric model that does not allow for multihoming is likely to produce biased estimates of demand on both sides of the market. In particular, on the reader side, accounting for multi-homing helps to recognize complementarity between products; on the advertising side, it allows to measure to what extent advertising demand depends on the shares of exclusive and overlapping readers.

Network Effects: Betwixt and between

“…This decision can be incorporated by means of a discrete choice model as done recently by Affeldt et al (2022) who investigate the bias in price elasticities and indirect network effects that arises when neglecting users decision of multi-homing.…”

“…However, a bias may still arise in markets where users frequently switch roles, which necessitates to consider the endogenous decision by individuals of which activities to perform. Given the observability of detailed user information, the complex user behavior can be incorporated by means of a discrete choice model as done recently by Affeldt et al (2022) in the context of multi-homing.…”