Multihoming Alliances and Price Competition

The over-the-top (OTT) subscription video streaming industry has witnessed significant growth and heightened competition in recent years, marked by the influx of new players. At the same time, competing services are forming new alliances that facilitate consumer multihoming. For instance, Amazon Prime Video has partnered with services such as HBO Max and Paramount+ to enhance the combined viewing experience for consumers through seamless integration. The authors build a game-theoretic model with horizontally differentiated services to examine how an alliance facilitating multihoming between two competing services affects price competition in the market. They find that the alliance's impact on price competition depends on the level of content differentiation in the market: Competition intensifies when differentiation is high but relaxes when differentiation is low. The alliance benefits the partnering services as long as the differentiation is not too high, and interestingly, it may increase the profitability of a third nonpartnering service when differentiation is sufficiently low. The authors show that consumer surplus increases under the alliance, even if price competition is relaxed. They also investigate a focal service's decision to partner with one of two competing services and find that it prefers to partner with a service that has high-quality content but a smaller loyal base. This research offers insights into the current landscape of the OTT video streaming market and provides implications for both managers and policymakers.