This paper studies vertical integration of a retailer and an operator in the e-commerce sector. It shows …rst that the comparison between independent oligopoly and integrated monopoly involves a tradeo¤ between competition and double marginalization which will have the opposite e¤ect. With linear demand we need at least 3 …rms (upstream and downstream) for the independent oligopoly to yield larger surplus. With constant elasticity demand, on the other hand, this is always true. Second it considers a setting where the number of …rms is endogenous and determined such that gross pro…ts cover …xed costs. While the integration of a single retailer-delivery operator pair may initially be welfare improving, the resulting market structure may not be sustainable. Furthermore, there exist a range of …xed costs for which the integrated monopoly emerges (following a single integration) and is welfare inferior to the initial independent equilibrium even when the reduction in the number of …xed costs is taken into account. Within this setting it also shows that multiple integration is typically welfare superior (for a given total number of …rms) to the integration of a single retailer-delivery operator. Third and last, it considers an extension wherein customers di¤er according to their location, urban or rural, involving di¤erent delivery costs. It shows that urban integration is more likely to have an adverse e¤ect on welfare than full integration.
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