Mergers Between On-Demand Service Platforms: The Impact on Consumer Surplus and Labor Welfare
Xiaogang Lin, Tao Lu, Xin Wang, Gang Kou
Information Systems Research · 2025 · Volume 36 · Issue 3
Abstract
On-demand service platforms connect customers with independent service providers (agents) by competitively setting service prices and wages. Mergers between on-demand service platforms have recently become prevalent, resulting in antitrust debates. A merger, although reducing competition, enables the agents on previously separate platforms to serve all the customers. In this paper, we develop a game-theoretical model to analyze the impact of a merger between two platforms. The two platforms compete on prices and wages before the merger, but are managed by a single firm after the merger. We show that a merger not only creates pooling benefits, but also enhances the cross-side network effect (i.e., customers benefit from more agents and vice versa). As a result, it can lead to a win-win-win outcome, where the platforms’ profits, consumer surplus, and labor welfare all improve after a merger. The win-win-win outcome is more probable if the premerger market is less saturated or if the market is more differentiated on the customer/agent side. Interestingly, a stronger within-side congestion effect may either strengthen or weaken a merger’s potential to benefit customers. Additionally, we show that a merger is less likely to improve consumer surplus and labor welfare if there are more multihoming agents in the market and that it is more likely to benefit labor welfare if there is less cross-side price transparency. Our results provide guidelines for antitrust policymakers to evaluate the impact of a merger between on-demand service platforms. History: Giri Kumar Tayi, Senior Editor; Jianqing Chen, Associate Editor. Funding: X. Lin received financial support from the National Natural Science Foundation of China [Grants 72471063 and 72001048], the Guangdong Basic and Applied Basic Research Foundation [Grant 2023A1515010857], and the Guangzhou Science and Technology Programme [Grant 2024A04J2557]. X. Wang received financial support from the National Natural Science Foundation of China [Grant 72495125], the Guanghua Talent Project of the Southwestern University of Finance and Economics, and the Research Grants Council of the Hong Kong Special Administrative Region, China [Grant 16210720]. G. Kou received financial support from the National Natural Science Foundation of China [Grants 72495125 and 71910107002]. Supplemental Material: The online appendix is available at https://doi.org/10.1287/isre.2022.0553 .
Keywords
mergers and acquisitions, platform competition, consumer surplus, labor welfare, sharing economy
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