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Vertical integration in the e-commerce sector

Borsenberger, Claire, Cremer, Helmuth, Joram, Denis and Lozachmeur, Jean-Marie (2018) Vertical integration in the e-commerce sector. TSE Working Paper, n. 18-919, Toulouse

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Official URL: http://tse-fr.eu/pub/32644

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.

Item Type: Monograph (Working Paper)
Language: English
Date: May 2018
Place of Publication: Toulouse
Uncontrolled Keywords: vertical integration, parcel delivery, e-commerce
JEL Classification: L42 - Vertical Restraints; Resale Price Maintenance; Quantity Discounts
L81 - Retail and Wholesale Trade; Warehousing; e-Commerce
L87 - Postal and Delivery Services
Subjects: B- ECONOMIE ET FINANCE
Divisions: TSE-R (Toulouse)
Institution: Université Toulouse 1 Capitole
Site: UT1
Date Deposited: 24 May 2018 10:10
Last Modified: 22 Nov 2018 08:54
["eprint_fieldname_oai_identifier" not defined]: oai:tse-fr.eu:32644
URI: http://publications.ut-capitole.fr/id/eprint/25981

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