Platform investment and price parity clauses

Chengsi Wang and Julian Wright

No 16-17, Working Papers from NET Institute

Abstract: Platforms use price parity clauses to prevent sellers charging lower prices when selling through other channels. Platforms justify these restraints by noting they are needed to prevent free-riding, which would undermine their incentives to invest in their platform. In this paper, we study the effect of price parity clauses on three different types of platform investment, and evaluate these restraints taking into account these investment effects. We find, that wide price parity clauses lead to excessive platform investment while without such price parity clauses there is insufficient platform investment. Even taking these investment effects into account, wide price parity clauses always lower consumer surplus and often lowers total welfare.

Keywords: search; vertical restraints; intermediation; investment (search for similar items in EconPapers)
JEL-codes: D40 L11 L14 L42 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2016-10
New Economics Papers: this item is included in nep-com, nep-ind, nep-mkt, nep-pay and nep-sea
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Related works:
Journal Article: Platform Investment and price parity clauses (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:net:wpaper:1617

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