Fulfillment by Platform: Antitrust and Upstream Market Power

Fulfillment by Platform (FBP) has been widely adopted by many e-commerce sellers. Despite providing better service to customers, recently platforms have come under antitrust scrutiny, with concerns ranging from data usage to retail competition. We examine whether the mere adoption of fulfillment services offered by platforms affects competition in the upstream markets among sellers. We use data from a leading online retailing marketplace to empirically evaluate the validity of such concerns, and estimate its effect on upstream supply echelons. We employ a structural empirical model to identify consumers' demand and merchants' cost structures. We estimate cost pressure on merchants upstream when they integrate the platform's fulfillment services. We find that the adoption of fulfillment by platform, can hurt upstream market competition, measured by the Herfindahl-Hirschman Index, that is attributable to higher cost of service. In particular, smaller merchants, with lower margins, are forced to increase prices more to remain profitable with FBP, leading to a price disadvantage compared to bigger merchants.