The Effects of Service Integration on Platform Competition and Welfare:
Evidence from Fulfillment by Amazon

Abstract: I build an equilibrium model of competition between Amazon and Walmart to measure the welfare effects of integrated logistics, Fulfillment by Amazon (FBA), in the U.S. e-commerce market. While integration eliminates double marginalization arising from marketplace commissions and logistics fees, it allows a platform to make its service exclusive to its own marketplace or more costly to use on a rival platform. Such foreclosure weakens cross-platform competition, with the magnitude of this effect depending on how much sellers’ adoption of integrated logistics raises their costs of multihoming (i.e., selling on both platforms). The model captures this trade-off: platforms set commission rates and logistics fees jointly, accounting for consumer choice and sellers’ multi-platform entry, logistics adoption, and pricing. I construct a unique dataset linking products and sellers across the two platforms, estimate the model, and document evidence of both pro- and anti-competitive effects of integration: the platforms hold logistics fees down substantially to increase commission profits, yet sellers who use FBA are much less likely to sell on Walmart, a finding that is further supported by a regression discontinuity design. On net, counterfactual separation of FBA from Amazon would reduce consumer welfare: although separation fosters sellers’ multihoming, it raises logistics fees, commission rates, and consumer prices. A counterfactual policy that removes exclusivity while preserving integration, such as making integrated logistics interoperable, would improve welfare.

Keywords: digital platforms, vertical integration, multihoming, e-commerce, logistics, antitrust