Market Power Increase and Sectoral Heterogeneity: the Role of e-Commerce Platforms

Abstract
This paper examines the role of intermediary e-commerce platforms as drivers for market power dynamics. I present a model with Input-Output linkages in which firms play a sequential two-stage game: in the first stage, firms invest resources via the platforms to improve the relationship with their upstream suppliers, at the benefit of cheaper inputs. In the second stage, firms compete oligopolistically in the goods market: firms with a superior input acquisition process manage to extract greater rents in the second stage, thanks to their cost advantage. Once calibrated to the data, the model attributes one third of the increase in markups to the rise in investment through e-commerce platforms. Nonetheless, this welfare cost is mitigated by a sizeable increase in aggregate productivity. At the sectoral level, the model can explain up to 40% of the heterogeneity in market power trends between sectors.