Platform competition: market structure and pricing

Résumé

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.