Vertical Mergers in Platforms Markets

We consider integration between platforms and devices manufacturers in presence of indirect network effects between buyers of devices and application developers. We obtain three insights. First, indirect network effects make manufacturers more collaborators than competitors, thereby lessening foreclosure concerns. Second, with direct network effects or cost to port applications, manufacturers gain by coordinating on the same platform. Vertical integration forces coordination, creates some market power and leads to foreclosure. Third, the integrated firm can subsidize one side and charge the other. Foreclosure may emerge, but is not driven by an anti-competitive motive and has an ambiguous impact on consumer surplus.

POUYET, J. and TRÉGOUËT, T. (2017). Vertical Mergers in Platforms Markets.

Keywords : #vertical-integration, #two, #sided-markets, #network-effects, #foreclosure