Dual Role Platforms and Search Order Distortion

Abstract

We study the situation wherein consumers’ search order is distorted by a vertically integrated platform that intermediates a third-party seller's product along with selling its own.
The price and welfare effects of search order distortion depend on commission rates. Particularly, the prohibition of search order distortion may harm welfare and consumer surplus when commission rates are high, whereas a vertical separation policy always improve welfare through lower prices. This result sheds lights on a potential risk of the policy that requires dominant platforms to be neutral while allowing them to sell on the marketplaces.

Keywords: consumer search, dual role platform, search order distortion, self-preferencing, structural separation

JEL Classification: D11, D83, L13, L49