Vertical Integration in the E-Commerce Sector

We study vertical integration of a retailer and an operator in the e-commerce sector. Its impact on consumers involves a tradeoff between competition and double marginalization. The competition effect dominates when the number of independent retailers and operators is sufficiently large. Even when integration of a single retailer-delivery operator pair is initially welfare improving, the resulting market structure may not be sustainable and result in an integrated monopoly that is welfare inferior to the initial independent equilibrium. Multiple integration is typically welfare superior to the integration of a single retailer-delivery operator pair. Integration is more likely to have an adverse effect on welfare when the integrated firm delivers only to rural customers.