The Competitive Effects of Vertical Integration in Platform Markets

Jérôme Pouyet (1, 2) , Thomas Trégouët (1)

1 THEMA - Théorie économique, modélisation et applications
2 ESSEC Business School

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.

Mots clés: platform markets; network effects; foreclosure; vertical integration

Domaines: Sciences de l'Homme et Société; Économie et finance quantitative [q-fin]

Jérôme Pouyet, Thomas Trégouët. The Competitive Effects of Vertical Integration in Platform Markets. 2023. ⟨hal-03328392v3⟩