Platform Competition, Vertical Differentiation and Price Coherence

47 Pages Posted: 7 May 2020

See all articles by Heiko A. Gerlach

Heiko A. Gerlach

University of Queensland - School of Economics

Junqian Li

The University of Queensland

Date Written: April 16, 2020

Abstract

This paper analyzes downstream merchant price coherence when upstream platforms are vertically differentiated.

When merchants are unable to charge different prices to consumers who purchase their product using different platforms, fee competition among platforms becomes more intense. We show that with price dispersion, platforms compete for market share while, with price coherence, they compete for the market.

As a consequence, price coherence can increase consumer surplus and total welfare when the quality difference and its cost are intermediate.

We also compare private and social incentives of a high-quality platform and a merchant to impose price coherence and we explore the effects of price dispersion on investment incentives.

Keywords: Price Coherence, Two-Sided Markets, Platform Competition, Vertical Differentiation

Suggested Citation

Gerlach, Heiko A. and Li, Junqian, Platform Competition, Vertical Differentiation and Price Coherence (April 16, 2020). Available at SSRN: https://ssrn.com/abstract=3577437 or http://dx.doi.org/10.2139/ssrn.3577437

Heiko A. Gerlach (Contact Author)

University of Queensland - School of Economics ( email )

Brisbane, QLD 4072
Australia

Junqian Li

The University of Queensland ( email )

St Lucia
Brisbane, Queensland 4072
Australia

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