Vertical mergers in platform markets

Présentation de Jérôme Pouyet (Thema-CNRS & ESSEC Business School)

2018-02-01_Pouyet-Jerome

Jérôme Pouyet (Thema-CNRS & ESSEC Business School)
En collaboration avec Thomas Trégouët

Abstract : We develop a framework to analyze the competitive impact of a vertical merger between a platform (e.g., operating system) and a downstream manufacturer (e.g., smartphone producers) in presence of two-sided network effects. Two platforms compete to supply two downstream manufacturers which sell to final customers. Consumers care not only about the manufacturers’ prices but also on sellers (e.g., application developers) joining the platform. Two-sided network effects make downstream manufacturers’ prices strategic substitutes. A vertical merger leads to a decrease of the price of the integrated manufacturer but to an increase of the non-integrated one’s. These effects have in turn an impact on the participation of sellers and thus on consumers’ utility. We show that a vertical merger is not privately profitable when network effects are strong ; the merger has a positive impact of the non-integrated manufacturer’s profit ; the merger increases total consumers’ surplus if the royalty only increases moderately. We discuss the implication of our results for competition authorities and extend our results in several dimensions.