Assessing the Impact of Vertical Integration in Platform Markets

By Jerome Pouyet & Thomas Trégouët – 

We analyze a vertical merger between a platform providing an operating system and a device manufacturer in the presence of indirect network effects between buyers of devices and developers of applications. Indirect network effects generate a form of demand complementarity at the manufacturer level. Vertical integration creates market power over nonintegrated manufacturers and application developers. It also allows the integrated firm to coordina