Radostina Shopova (Bulgarian Academy of Sciences, Economic Research Institute) will present “Vertical Integration in Platforms: Two-sided Monetization and Commitments” on April 28th, 2025, at 2:00 PM, in room QA407.
Abstract:
Digital platforms have gained substantial market power through network effects and seek to expand further, sometimes by vertically integrating with producers to gain control over their products. The EU’s Digital Markets Act closely monitors such mergers to prevent market exclusion and reduced innovation. This paper models vertical integration in digital platforms, incorporating two key aspects: 1) platforms’ two-sided monetization, collecting commissions from sellers and charging access fees to consumers, and 2) the repeated nature of interactions between parties. Post-merger, to build a larger consumer base, the platform may commit to marginal cost pricing or price the integrated product below cost if demand diversion strengthens with higher prices. This creates a stronger margin squeeze for outside sellers, even though the platform reduces commissions. Still, if sellers offer highly differentiated products, they may gain from the larger consumer base. However, the likelihood of third-party sellers profiting decreases in markets with many participants and weak outside options for consumers.