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Platform competition: market structure and pricing

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  • Borsenberger, Claire
  • Cremer, Helmuth
  • Joram, Denis
  • Lozachmeur, Jean-Marie
  • Malavolti, Estelle

Abstract

We consider an e-commerce sector with two retailers (which may be marketplaces) and two delivery operators. Products are differentiated according to the retailer and the mode of delivery. The representation of product differentiation is inspired by the Anderson, De Palma and Thisse (2002) discrete choice model. We examine vertical integration of a retailer/ delivery operator pair. Vertical restraints like bundling and/or foreclosure are then considered on top of the integration. Vertical integration in itself eliminates double marginalization, which enhances consumerswelfare. On the other hand, it reduces product variety, and the market power it conveys is likely to reduce profits of the remaining firms. Bundling or foreclosure can be expected to further exacerbate these negative effects. Our most remarkable result is that vertical integration of a single retailer/operator pair will lead to bundling and foreclosure, and possibly the complete exit of the remaining retailers and operators. This is true even when no explicit bundling or foreclosure is put in place on an a priori basis. Consequently, a competition authority that is concerned with total welfare, should not allow the initial merger.

Suggested Citation

  • Borsenberger, Claire & Cremer, Helmuth & Joram, Denis & Lozachmeur, Jean-Marie & Malavolti, Estelle, 2019. "Platform competition: market structure and pricing," TSE Working Papers 19-1010, Toulouse School of Economics (TSE).
    • Handle: RePEc:tse:wpaper:122941
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    References listed on IDEAS

    as
    1. Claire Borsenberger & Helmuth Cremer & Denis Joram & Jean-Marie Lozachmeur, 2018. "Vertical Integration in the E-Commerce Sector," Topics in Regulatory Economics and Policy, in: Pier Luigi Parcu & Timothy J. Brennan & Victor Glass (ed.), New Business and Regulatory Strategies in the Postal Sector, pages 143-160, Springer.
    2. Pier Luigi Parcu & Timothy J. Brennan & Victor Glass (ed.), 2018. "New Business and Regulatory Strategies in the Postal Sector," Topics in Regulatory Economics and Policy, Springer, number 978-3-030-02937-1, April.
    3. Markus Reisinger & Emanuele Tarantino, 2015. "Vertical integration, foreclosure, and productive efficiency," RAND Journal of Economics, RAND Corporation, vol. 46(3), pages 461-479, September.
    4. Rey, Patrick & Tirole, Jean, 2007. "A Primer on Foreclosure," Handbook of Industrial Organization, in: Mark Armstrong & Robert Porter (ed.), Handbook of Industrial Organization, edition 1, volume 3, chapter 33, pages 2145-2220, Elsevier.
    Full references (including those not matched with items on IDEAS)

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    Keywords

    E-commerce; delivery operators; vertical integration; bundling; foreclosure;
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