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Price Parity Clauses and Platform Investments

Author

Listed:
  • Jong-Hee Hahn

    (Yonsei University)

  • Seongkyun Kim

    (Software Policy & Research Institute)

Abstract

This paper investigates the welfare effects of price parity (most-favored-nation, MFN) clauses in platform markets characterized by cross-platform investment externalities. Although price parity clauses can reduce fee competition and elevate retail prices, they may also improve efficiency by incentivizing platforms to increase demand-enhancing investments. Using a representative consumer model, we demonstrate that under conditions of substantial investment leakage and moderate marginal investment costs, the efficiency gains from enhanced investment can outweigh the negative impact of higher prices. We derive sufficient conditions under which platform profits, consumer surplus, and overall social welfare are all increased by the presence of price parity clauses. The stronger the platform competition, the greater the likelihood that price parity clauses will reduce consumer welfare.

Suggested Citation

  • Jong-Hee Hahn & Seongkyun Kim, 2026. "Price Parity Clauses and Platform Investments," Working papers 2026rwp-282, Yonsei University, Yonsei Economics Research Institute.
    • Handle: RePEc:yon:wpaper:2026rwp-282
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    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L4 - Industrial Organization - - Antitrust Issues and Policies
    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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