When Prohibiting Platform Parity Agreements Harms Consumers

Michele Bisceglia (), Jorge Padilla and Salvatore Piccolo ()
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Michele Bisceglia: Toulouse School of Economics and Università di Bergamo
Jorge Padilla: Compass Lexecon

CSEF Working Papers from Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy

Abstract: We consider a three-level supply chain where a monopolistic seller distributes its product both directly through its own distribution channel and indirectly through platforms accessed by intermediaries competing for final consumers. In this setting, we examine the welfare effects of platform parity agreements, namely contractual provisions according to which the seller cannot charge different prices for the same product distributed through different platforms. We find that these agreements mitigate the marginalization problem both in a wholesale and an agency model. However, only in the former model platform parity unambiguously increases consumer surplus; in the latter, it also increases the commissions paid by the monopolist to the platforms, whereby exacerbating the marginalization problem. On the net, platform parity benefits consumers in the agency model when competition between direct and indirect distribution is sufficiently intense. Interestingly, in both models consumers' preferences are always aligned with the platforms' but not with the seller's.

Keywords: Agency Model; Distribution Channels; Platform Parity Agreements; Wholesale Model. (search for similar items in EconPapers)
JEL-codes: L42 L50 L81 (search for similar items in EconPapers)
Date: 2019-09-16
New Economics Papers: this item is included in nep-com, nep-cta and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:sef:csefwp:542

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