Mergers Between On-Demand Service Platforms: The Impact on Consumer Surplus and Labor Welfare

On-demand service platforms connect customers with independent service providers (agents) by competitively setting service prices and wages. Mergers between on-demand service platforms have recently become prevalent, resulting in antitrust debates. A merger, although reducing competition, enables the agents on previously separate platforms to serve all the customers. In this paper, we develop a game-theoretical model to analyze the impact of a merger between two platforms. The two platforms compete on prices and wages before the merger, but are managed by a single firm after the merger. We show that a merger not only creates pooling benefits, but also enhances the cross-side network effect (i.e., customers benefit from more agents and vice versa). As a result, it can lead to a win-win-win outcome, where the platforms’ profits, consumer surplus, and labor welfare all improve after a merger. The win-win-win outcome is more probable if the premerger market is less saturated or if the market is more differentiated on the customer/agent side. Interestingly, a stronger within-side congestion effect may either strengthen or weaken a merger’s potential to benefit customers. Additionally, we show that a merger is less likely to improve consumer surplus and labor welfare if there are more multihoming agents in the market and that it is more likely to benefit labor welfare if there is less cross-side price transparency. Our results provide guidelines for antitrust policymakers to evaluate the impact of a merger between on-demand service platforms.