Economics Seminar - "Platform Acquisitions, Tying, and Growth"
An UEBS Department of Economics seminar
Economics Seminar - Applied Micro Jane Olmstead-Rumsey (LSE)
An UEBS Department of Economics seminar | |
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Speaker(s) | Jane Olmstead-Rumsey (LSE) |
Date | 28 March 2025 |
Time | 13:10 to 14:30 |
Place | Marchant Syndicate Room A |
Event details
Abstract
Abstract: To understand the growth effects of acquisitions in platform-based industries we develop a model of consumption through a platform. The platform supplies some of the products in the economy and the rest are supplied by standalone firms. The platform chooses how much of its appeal to share with the standalone firms (‘’product tying”), balancing the incentive to increase sales of its own products against the desire to attract users to the platform. Acquisitions of standalone firms allow the platform to expand its product offerings and reduce the cost of tying. We use the model to study the effects of acquisitions and product tying on firm entry, household platform use, growth, and welfare. The platform has an ambiguous effect on entry: the option value of acquisition encourages entry while tying discourages it by the reducing the profits of standalone firms. The latter effect dominates quantitatively. In the data, most acquisitions by platform-based "Big Tech” firms are cross-industry and households
allocate a significant amount of time to using online platforms.
Location:
Marchant Syndicate Room A