Exclusivity Under Different Vertical Structures in Online Platforms With Network Effects

Abstract

Securing exclusive premium content can enhance a platform's competitive edge, becoming a key factor in the success of online platform competition. This study examines exclusivity strategies under vertical separation and vertical integration, assessing their impacts on the endogenous quality and pricing decisions of competing platforms, as well as on consumer and overall welfare. Our findings reveal that the platform with exclusive premium content generally increase their quality and pricing, whereas the competitor tends to lower theirs. However, network effects moderate these price increases in vertical integration. Network effects play a crucial role, making premium content provider weighs the benefits of exclusivity against the potential for broader consumer engagement through nonexclusivity. Although exclusivity always reduces consumer surplus under vertical separation, it potentially aligns with consumer surplus in vertical integration. Additionally, our analysis of asymmetric market conditions reveals that premium content provider often forms exclusive agreement with the dominant platform, exacerbating quality and price disparities. Given these dynamics, we suggest that policymakers should rigorously evaluate the impacts of exclusivity on consumer surplus, offering crucial insights for antitrust authorities on the regulatory challenges in online platform markets.