Should Both Platforms Be Kept Operational After a Merger of Two Social Media Businesses?

ABSTRACT 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.