Dual-Role Platforms and Self-Preferencing: Sequential Search Approach
41 Pages Posted: 4 Feb 2021 Last revised: 14 Oct 2022
Date Written: October 13, 2022
Abstract
We analyze the welfare properties of a dual-role platform's self-preferencing by studying the situation wherein a vertically integrated platform makes its own product prominent against the third-party seller's product.
We show that the welfare effects of self-preferencing depend on commission rates. Particularly, the prohibition of self-preferencing may harm welfare and consumer surplus when commission rates are high, whereas a vertical separation policy always improves consumer welfare through lower prices. This result sheds light on a potential risk of the policy that requires dominant platforms to be neutral while allowing them to sell on the marketplaces.
Keywords: consumer search, dual-role platform, self-preferencing, structural separation
JEL Classification: D11, D83, L13, L49
Suggested Citation: Suggested Citation