Market Power Possibilities on Digital Platforms
Paper Session
Monday, Jan. 5, 2026 1:00 PM - 3:00 PM (EST)
- Chair: Alexander MacKay, University of Virginia
Algorithmic Steering and Advertising on Platforms
Abstract
We analyze steering/self-preferencing by a retail platform, using both economic theory and simulations of AI algorithms. When the platform does not sell advertising slots to merchants (which guarantee the merchant will be displayed to consumers), the platform has incentives to exclude merchants when its commission rate is in a lower range, but not when its commission rate is higher. Facing the threat of not being displayed, the merchant’s optimal response is to raise its price on the platform, so as to reduce the substitution threat it poses to the platform’s own product. Thus, even when the equilibrium outcome is for the merchant to be displayed, the self-preferencing possibility raises overall prices and harms competition. We then introduce an advertising option, and show that this can lead to lower prices while still ensuring the merchant is displayed to consumers. However, the merchant need not gain from the introduction of advertising. Various extensions are considered.The Effects of Return Policies in E-commerce
Abstract
We quantify the welfare effects of return policies in a large online retail platform. Utilizing variation in return policies across sellers of tablets on Alibaba's Tmall, we estimate a model of demand and supply where the consumer has the option to return the product after purchasing it. We find that a more lenient return policy impacts demand through a reduction of the risk to the consumer, but does not serve to provide a strong signal of seller quality. On the supply side, estimates suggest that returns are costly for sellers, as they are approximately equal to the cost of proving a brand new tablet to the buyer. We use the model to estimate the effect of platform-level return policies, with a focus on the impact of the leniency of the uniform rule. As policies become more lenient, consumer surplus decreases and firm profit increases. The reduction in consumer surplus comes from the price response of firms, as they pass through increases in return cost to consumers. This suggests that the leniency of a platform-level return policy can work to undermine the goal of improving the customer experience.Vertical Integration and Consumer Choice: Evidence from a Field Experiment
Abstract
Platforms, retailers, and other firms often offer their own products alongside products sold by competitors, but this form of vertical integration has become a target of regulation in digital markets. We study the effects of this practice through a field experiment that hides brands owned by Amazon (i.e., private labels) from shoppers on Amazon.com. We first consider the effects of this removal on three aspects of consumer behavior: substitution to other products, changes in search effort, and substitution to other retail websites. In the absence of Amazon brands, our results indicate that consumers substitute toward products that are similar along most observable dimensions. We find no evidence that treated consumers change their search effort, nor that they shift their shopping behavior to other retail websites. To evaluate a fourth mechanism---how the presence of Amazon brands affects equilibrium prices---we estimate a structural model of demand and simulate counterfactual prices when removing such products. Our estimates imply that, for the categories we study, removing Amazon brands would reduce consumer surplus by 3.8 percent in the short run, and roughly one quarter of the impact is due to equilibrium price increases by other products. The effects are heterogeneous, with consumer surplus reductions exceeding 10 percent in some categories, while other categories realize no change or even positive increases in consumer surplus when Amazon brands are removed.JEL Classifications
- L13 - Oligopoly and Other Imperfect Markets
- L40 - General