EXPRESS: Multi-Homing Alliances and Price Competition

The 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, we are observing an interesting phenomenon where competing services are forming new alliances that facilitate consumer multi-homing. 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. We build a game-theoretic model with horizontally differentiated services to examine how an alliance facilitating multi-homing between two competing services affects price competition in the market. We 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, may increase the profitability of a third non-partnering service when differentiation is sufficiently low. We show that consumer surplus increases under the alliance, even if price competition is relaxed. We also investigate a focal service’s decision to partner with one of two competing services and show that it prefers partnering with a service that has high quality content but a smaller loyal base. Our research offers insights into the current landscape of the OTT video streaming market and provides implications for both managers and policymakers.