Gatekeepers and Self-Preferencing: Incentives and Welfare Trade-offs in Two-sided Markets

Francesco Decarolis and Muxin Li

No 20668, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We study a two-sided platform where a dominant gatekeeper supplies both a primary product and a competing ancillary service. By degrading outcomes for users of rival ancillary services, the gatekeeper engages in cross-market self-preferencing. Our theoretical model identifies when such behavior raises or lowers welfare, depending on buyers’ and sellers’ preferences and the platform’s pricing instruments. Analyzing a recent antitrust case against Google, we show that remedies targeting only one side can misalign incentives between different user groups, reducing welfare. Counterfactual simulations highlight when alternative behavioral or structural interventions realign incentives and improve market efficiency.

JEL-codes: L21 L40 L51 (search for similar items in EconPapers)
Date: 2025-09
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