When Prohibiting Platform Parity Agreements Harms Consumers

60 Pages Posted: 25 Sep 2019

See all articles by Michele Bisceglia

Michele Bisceglia

University of Bergamo - Department of Management, Economics and Quantitative Methods; University of Toulouse 1 - Toulouse School of Economics (TSE)

Jorge Padilla

Compass Lexecon

Salvatore Piccolo

University of Bergamo, Compass Lexecon and CSEF

Date Written: September 16, 2019

Abstract

We consider a three-level supply chain where a monopolistic seller distributes its product both directly through its own distribution channel and indirectly through platforms accessed by intermediaries competing for final consumers. In this setting, we examine the welfare effects of platform parity agreements, namely contractual provisions according to which the seller cannot charge different prices for the same product distributed through different platforms. We find that these agreements mitigate the marginalization problem both in a wholesale and an agency model. However, only in the former model platform parity unambiguously increases consumer surplus; in the latter, it also increases the commissions paid by the monopolist to the platforms, whereby exacerbating the marginalization problem. On the net, platform parity benefits consumers in the agency model when competition between direct and indirect distribution is sufficiently intense. Interestingly, in both models consumers' preferences are always aligned with the platforms' but not with the seller's.

Keywords: Agency Model, Distribution Channels, Platform Parity Agreements, Wholesale Model

JEL Classification: L42, L50, L81

Suggested Citation

Bisceglia, Michele and Padilla, Jorge and Piccolo, Salvatore, When Prohibiting Platform Parity Agreements Harms Consumers (September 16, 2019). Available at SSRN: https://ssrn.com/abstract=3454527 or http://dx.doi.org/10.2139/ssrn.3454527

Michele Bisceglia

University of Bergamo - Department of Management, Economics and Quantitative Methods ( email )

Salvecchio 19
Bergamo, 24129
Italy

University of Toulouse 1 - Toulouse School of Economics (TSE) ( email )

Place Anatole-France
Toulouse Cedex, F-31042
France

Jorge Padilla

Compass Lexecon ( email )

Paseo de la Castellana 7
Madrid, 28046
Spain

Salvatore Piccolo (Contact Author)

University of Bergamo, Compass Lexecon and CSEF ( email )

via de caniana 2
24127
Bergamo, BG 24127
Italy

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