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The Competitive Effects of Vertical Integration in Platform Markets

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  • Pouyet, Jerome
  • Trégouët, Thomas

Abstract

We analyze vertical integration between platforms providing operating systems to manufacturers of devices when there are indirect network effects between buyers of devices and developers of applications. Vertical integration creates market power over developers, and over non-integrated manufacturers but only under certain circumstances. That market power enables to coordinate pricing decisions across both sides of the market, which leads to a better internalization of network effects. Vertical integration does not systematically lead to foreclosure and can benefit all parties, even in the absence of efficiency gains. Its competitive impact depends on the strength and the structure of indirect network effects.

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  • Pouyet, Jerome & Trégouët, Thomas, 2022. "The Competitive Effects of Vertical Integration in Platform Markets," CEPR Discussion Papers 17681, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:17681
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    More about this item

    Keywords

    Vertical integration; Platform markets; Network effects; Foreclosure;
    All these keywords.

    JEL classification:

    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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