Competition policy in a general-equilibrium platform economy

Abstract

This paper examines the wage and welfare effects of the competition policy in a platform economy. An increase in downstream platform providers widens the skilled-unskilled wage gap in the short run. Moreover, competition brings about a beneficial price pass-through effect but a detrimental cost-pushing effect on upstream manufacturers. This leads to business dynamism in manufacturing firms. By numerical simulations, the number of manufacturing firms increases, thus further widening wage inequality in the long run. The optimal number of platform providers is smaller when the business-stealing effect is larger, whereas it is larger when the price pass-through effect is greater.