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Platform Competition, Vertical Differentiation, and Price Coherence

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  • Heiko Gerlach
  • Junqian Li
Abstract
This paper analyzes merchants’ price coherence in two-sided markets with vertically differentiated platforms. When merchants are unable to charge different prices to consumers who purchase their products using different platforms, fee competition among platforms becomes more intense on both sides of the market. We show that with unrestricted prices, platforms compete for market share, while with price coherence, they compete for the entire sales of a merchant. As a consequence, price coherence can reduce total platform fees, increase consumer surplus, and raise total welfare. We also compare private and social incentives of a platform-merchant pair to impose price coherence, and we explore the effects of price coherence on investment incentives.

Suggested Citation

  • Heiko Gerlach & Junqian Li, 2021. "Platform Competition, Vertical Differentiation, and Price Coherence," Journal of Law and Economics, University of Chicago Press, vol. 64(3), pages 439-477.
    • Handle: RePEc:ucp:jlawec:doi:10.1086/713453
    DOI: 10.1086/713453
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