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The Competitive Effects of Vertical Integration in Platform Markets

Author

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  • Jérôme Pouyet

    (THEMA - Théorie économique, modélisation et applications - CNRS - Centre National de la Recherche Scientifique - CY - CY Cergy Paris Université, ESSEC Business School)

  • Thomas Trégouët

    (THEMA - Théorie économique, modélisation et applications - CNRS - Centre National de la Recherche Scientifique - CY - CY Cergy Paris Université)

Abstract

We analyze vertical integration in a setting where, first, platforms compete to provide an operating system to manufacturers of devices and attract developers of applications, and, second, 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.

Suggested Citation

  • Jérôme Pouyet & Thomas Trégouët, 2023. "The Competitive Effects of Vertical Integration in Platform Markets," Working Papers hal-03328392, HAL.
    • Handle: RePEc:hal:wpaper:hal-03328392
    Note: View the original document on HAL open archive server: https://hal.science/hal-03328392v3
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    References listed on IDEAS

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    More about this item

    Keywords

    platform markets; network effects; foreclosure; vertical integration;
    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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