Foreclosure incentives with network effects: a framework for screening digital mergers

Johannes Johnen and Shiva Shekhar
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Johannes Johnen: Université catholique de Louvain, LIDAM/CORE, Belgium

No 3356, LIDAM Reprints CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: This paper proposes a simple yet useful framework for evaluating vertical mergers in digital markets by distinguishing between product-specific and ecosystem-specific network effects. Vis-à-vis no network effects, product-specific network effects amplify foreclosure and steering incentives, as a rival’s growth directly undermines the platform’s product value. Conversely, ecosystem-specific effects dampen foreclosure incentives, because rivals contribute to the overall value of the platform ecosystem. We develop a formal model illustrating how this distinction shapes platform behavior and competitive outcomes. We apply this distinction to real-world examples to illustrate its potential u sefulness. Our distinction implies that regulators may want to adopt a stricter standard with no presumption of efficiencies where product-specific effects dominate. In contrast, when ecosystem-specific effects prevail, merger evaluation should mirror traditional vertical merger analysis, thus offering a more nuanced approach to merger evaluation by presenting a practical screening tool to identify problematic vertical mergers in markets featuring network effects.

JEL-codes: L22 L41 L51 (search for similar items in EconPapers)
Pages: 20
Date: 2026-05-01
Note: In: Journal of Competition Law & Economics, 2026
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Persistent link: https://EconPapers.repec.org/RePEc:cor:louvrp:3356

DOI: 10.1093/joclec/nhag011

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