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A Leverage Theory of Tying in Two-Sided Markets

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  • CHOI, Jay Pil
  • JEON, Doh-Shin

Abstract

Motivated by the recent antitrust investigations concerning Google, we develop a leverage theory of tying in two-sided markets. In a setting where the "one monopoly profit result" holds otherwise, we uncover a new channel through which tying allows a monopolistic firm in one market to credibly leverage its monopoly power to another competing market if the latter is two-sided. In the presence of the nonnegative price constraint, tying provides a mechanism to circumvent the constraint in the tied product market without inviting an aggressive response by the rival firm. We identify conditions under which tying in two-sided markets is promotable and explore its welfare implications. In addition, we show that our model can be applied more widely 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

  • CHOI, Jay Pil & JEON, Doh-Shin, 2016. "A Leverage Theory of Tying in Two-Sided Markets," Discussion paper series HIAS-E-37, Hitotsubashi Institute for Advanced Study, Hitotsubashi University.
    • Handle: RePEc:hit:hiasdp:hias-e-37
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    References listed on IDEAS

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    Cited by:

    1. Jeon, Doh-Shin & Jullien, Bruno & Klimenko, Mikhail, 2021. "Language, internet and platform competition," Journal of International Economics, Elsevier, vol. 131(C).
    2. 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.
    3. Pouyet, Jérôme & Trégouët, Thomas, 2016. "Vertical Mergers in Platform Markets," CEPR Discussion Papers 11703, C.E.P.R. Discussion Papers.
    4. Etro, Federico, 2019. "Mergers of complements and entry in innovative industries," International Journal of Industrial Organization, Elsevier, vol. 65(C), pages 302-326.
    5. Etro, Federico, 2016. "Research in economics and industrial organization," Research in Economics, Elsevier, vol. 70(4), pages 511-517.
    6. Joshua S. Gans, 2022. "The Specialness of Zero," Journal of Law and Economics, University of Chicago Press, vol. 65(1), pages 157-176.
    7. Bartelt, Nadja, 2018. "Bundling in Internetmärkten: Ökonomische Besonderheiten, Wettbewerbseffekte und Regulierungsimplikationen," Ilmenau Economics Discussion Papers 120, Ilmenau University of Technology, Institute of Economics.
    8. Zennyo, Yusuke, 2020. "Freemium competition among ad-sponsored platforms," Information Economics and Policy, Elsevier, vol. 50(C).
    9. Lin, Xiaogang & Zhou, Yong-Wu & Xie, Wei & Zhong, Yuanguang & Cao, Bin, 2020. "Pricing and Product-bundling Strategies for E-commerce Platforms with Competition," European Journal of Operational Research, Elsevier, vol. 283(3), pages 1026-1039.
    10. Andre Boik, 2018. "Prediction and Identification in Two-Sided Markets," CESifo Working Paper Series 6857, CESifo.

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    More about this item

    Keywords

    Tying; Leverage of monopoly power; Two-sided markets; Zero pricing; Non-negative pricing constraint;
    All these keywords.

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L5 - Industrial Organization - - Regulation and Industrial Policy

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