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A Leverage Theory of Tying in Two-sided Markets with Non-Negative Price Constraints

Author

Listed:
  • Doh-Shin Jeon

    (TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

  • Jay Pil Choi

Abstract

Partly motivated by the recent antitrust investigations concerning Google, we develop a leverage theory of tying in two-sided markets. We analyze incentives for a monopolist to tie its monopolized product with another product in a two-sided market. Tying provides a mechanism to circumvent the non-negative price constraint in the tied product market without inviting an aggressive response as the rival firm faces the non-negative price constraint. We identify conditions under which tying in two-sided markets is profitable and explore its welfare implications. Our mechanism can be more widely applied to any markets in which sales to consumers in one market can generate additional revenues that cannot be competed away due to non-negative price constraints.

Suggested Citation

  • Doh-Shin Jeon & Jay Pil Choi, 2021. "A Leverage Theory of Tying in Two-sided Markets with Non-Negative Price Constraints," Post-Print hal-03176053, HAL.
    • Handle: RePEc:hal:journl:hal-03176053
    DOI: 10.1257/mic.20180234
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    Cited by:

    1. Gregor Langus & Vilen Lipatov, 2021. "Does Envelopment through Data Advantage Call for New Regulation?," CESifo Working Paper Series 8932, CESifo.
    2. Bianchi, Milo & Bouvard, Matthieu & Gomes, Renato & Rhodes, Andrew & Shreeti, Vatsala, 2023. "Mobile payments and interoperability: Insights from the academic literature," Information Economics and Policy, Elsevier, vol. 65(C).
    3. Etro, Federico, 2021. "Device-funded vs ad-funded platforms," International Journal of Industrial Organization, Elsevier, vol. 75(C).
    4. Qihong Liu & Daniel Nedelescu & Ji Gu, 2021. "The impact of strategic agents in two-sided markets," Journal of Economics, Springer, vol. 134(3), pages 195-218, December.
    5. Massimo Motta, 2022. "Self-preferencing and foreclosure in digital markets: Theories of harm for abuse cases," Economics Working Papers 1851, Department of Economics and Business, Universitat Pompeu Fabra.
    6. Klaus Gugler & Florian Szücs & Ulrich Wohak, 2023. "Start-up Acquisitions, Venture Capital and Innovation: A Comparative Study of Google, Apple, Facebook, Amazon and Microsoft," Department of Economics Working Papers wuwp340, Vienna University of Economics and Business, Department of Economics.
    7. Doh-Shin Jeon & Domenico Menicucci & Nikrooz Nasr, 2023. "Compatibility Choices, Switching Costs, and Data Portability," American Economic Journal: Microeconomics, American Economic Association, vol. 15(1), pages 30-73, February.
    8. Martin Peitz, 2023. "Governance and Regulation of Platforms," CRC TR 224 Discussion Paper Series crctr224_2023_480, University of Bonn and University of Mannheim, Germany.
    9. Tirole, Jean & Bisceglia, Michele, 2023. "Fair Gatekeeping in Digital Ecosystems," TSE Working Papers 1452, Toulouse School of Economics (TSE).
    10. Bruno Jullien & Alessandro Pavan & Marc Rysman, 2021. "Two-sided markets, pricing, and network effects," Post-Print hal-03828345, HAL.
    11. Alexandre de Cornière & Greg Taylor, 2024. "Anticompetitive Bundling When Buyers Compete," American Economic Journal: Microeconomics, American Economic Association, vol. 16(1), pages 293-328, February.
    12. Jeon, Doh-Shin & Jullien, Bruno & Klimenko, Mikhail, 2021. "Language, internet and platform competition," Journal of International Economics, Elsevier, vol. 131(C).
    13. Jay Pil Choi & Doh‐Shin Jeon, 2023. "Platform design biases in ad‐funded two‐sided markets," RAND Journal of Economics, RAND Corporation, vol. 54(2), pages 240-267, June.
    14. Motta, Massimo, 2023. "Self-preferencing and foreclosure in digital markets: Theories of harm for abuse cases," International Journal of Industrial Organization, Elsevier, vol. 90(C).
    15. Jay Pil Choi & Doh-Shin Jeon, 2023. "Platform Design Biases in Ad-Funded Two-Sided Markets," Post-Print hal-04470490, HAL.
    16. Peitz, Martin & Samkharadze, Lily, 2022. "Collusion between non-differentiated two-sided platforms," Economics Letters, Elsevier, vol. 215(C).
    17. Miao, Chun-Hui, 2022. "The pricing of ancillary goods when selling on a platform," International Journal of Industrial Organization, Elsevier, vol. 83(C).
    18. Kittaka, Yuta & Sato, Susumu & Zennyo, Yusuke, 2023. "Self-preferencing by platforms: A literature review," Japan and the World Economy, Elsevier, vol. 66(C).
    19. Alexandre de Cornière & Greg Taylor, 2021. "Upstream Bundling and Leverage of Market Power [Commodity bundling and the burden of monopoly]," The Economic Journal, Royal Economic Society, vol. 131(640), pages 3122-3144.
    20. Claire Chambolle & Hugo Molina, 2021. "A Buyer Power Theory of Exclusive Dealing and Exclusionary Bundling," Working Papers hal-03231803, HAL.
    21. Etro, Federico, 2023. "Platform competition with free entry of sellers," International Journal of Industrial Organization, Elsevier, vol. 89(C).
    22. Chiara Fumagalli & Massimo Motta, 2024. "Economic Principles for the Enforcement of Abuse of Dominance Provisions," Working Papers 1431, Barcelona School of Economics.
    23. Choi, Jay Pil & Yang, Sangwoo, 2021. "Investigative journalism and media capture in the digital age," Information Economics and Policy, Elsevier, vol. 57(C).
    24. Jay Pil Choi & Doh-Shin Jeon, 2022. "Platform Design Biases in Ad-Funded Two-Sided Markets," Post-Print hal-04018490, HAL.
    25. Massimo Motta & Martin Peitz, 2023. "Denial of Interoperability and Future First-Party Entry," CRC TR 224 Discussion Paper Series crctr224_2023_447, University of Bonn and University of Mannheim, Germany.

    More about this item

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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