When should both platforms be kept operational after a merger of two social media platforms?

What is it about?

When two social media platform businesses merge, a critical decision for the merged entity is whether to keep both platforms operational. We investigate the role of user-homing and the platforms' user bases and advertiser bases in the decision. The only source of revenue for the platforms is the fees charged to the advertisers for advertising on the platforms. Different groups of advertisers have different platform preferences. The main results show that when all users single-home (multihome), the gain from the merger is more from keeping one (both) platform operational. A merger is welfare increasing if the users single-home.

Featured Image

Why is it important?

While in the case of the Facebook and Instagram merger, both platforms were kept operational, the same was not true for all cases of such mergers. The paper outlines the conditions under which it is beneficial for the merged entity to keep both platforms operational.