Platform Preferencing and Price Competition I: Evidence from Amazon 

Abstract

A platform's preferencing mechanism, or rule that assigns the placement of offers on a platform, determines both firm and consumer welfare. First, we theoretically derive a platform's consumer-optimal preferencing rule in a setting in which firms choose prices in a locally envy-free profile, given the preferencing rule. In special cases, locally envy-free outcomes correspond with equilibria in a Generalized Second Price auction. Additionally, we show that Reimers and Waldfogel (2023) empirical test to measure platform bias is valid even under prices that are endogenous to the preferencing rule in a locally envy-free profile. On Amazon, we measure the extent of platform bias using a large dataset from the platform during the years 2020-2022.

Keywords: Game Theory, Industrial Organization, Auction Design