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Vertical integration in the e-commerce sector

Claire Borsenberger, Helmuth Cremer, Denis Joram and Jean-Marie Lozachmeur

No 18-919, TSE Working Papers from Toulouse School of Economics (TSE)

Abstract: This paper studies vertical integration of a retailer and an operator in the e-commerce sector. It shows first that the comparison between independent oligopoly and integrated monopoly involves a tradeoff between competition and double marginalization which will have the opposite effect. With linear demand we need at least 3 firms (upstream and downstream) for the independent oligopoly to yield larger surplus. With constant elasticity demand, on the other hand, this is always true. Second it considers a setting where the number of firms is endogenous and determined such that gross profits cover fixed costs. While the integration of a single retailer-delivery operator pair may initially be welfare improving, the resulting market structure may not be sustainable. Furthermore, there exist a range of fixed costs for which the integrated monopoly emerges (following a single integration) and is welfare inferior to the initial independent equilibrium even when the reduction in the number of fixed costs is taken into account. Within this setting it also shows that multiple integration is typically welfare superior (for a given total number of firms) to the integration of a single retailer-delivery operator. Third and last, it considers an extension wherein customers differ according to their location, urban or rural, involving di¤erent delivery costs. It shows that urban integration is more likely to have an adverse effect on welfare than full integration.

Keywords: vertical integration; parcel delivery; e-commerce (search for similar items in EconPapers)
JEL-codes: L42 L81 L87 (search for similar items in EconPapers)
Date: 2018-05
New Economics Papers: this item is included in nep-com, nep-ind and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Working Paper: Vertical integration in the e-commerce sector (2019) Downloads
Chapter: Vertical Integration in the E-Commerce Sector (2018)
Working Paper: Vertical integration in the e-commerce sector (2018) Downloads
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