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Tying in Two-Sided Markets with Multi-Homing

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  • Jay Pil Choi

    ()
    (Michigan State University)

Abstract

This paper analyzes the effects of tying arrangements on market competition and social welfare in two-sided markets when economic agents can engage in multi-homing, that is, they can participate in multiple platforms in order to reap maximal network benefits. The model shows that tying induces more consumers to multi-home and makes platform-specific exclusive content available to more consumers, which is also beneficial to content providers. As a result, tying can be welfare-enhancing if multi-homing is allowed, even in cases where its welfare impacts are negative in the absence of multi-homing. The analysis thus can have important implications for recent antitrust cases in industries where multi-homing is prevalent.

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File URL: http://www.netinst.org/Choi2006.pdf
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Bibliographic Info

Paper provided by NET Institute in its series Working Papers with number 06-04.

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Length: 30 pages
Date of creation: Sep 2006
Date of revision: Sep 2006
Handle: RePEc:net:wpaper:0604

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Web page: http://www.NETinst.org/

Related research

Keywords: tying; two-sided markets; (indirect) network effects; multi-homing.;

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References

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  1. Farrell, Joseph & Klemperer, Paul, 2007. "Coordination and Lock-In: Competition with Switching Costs and Network Effects," Handbook of Industrial Organization, Elsevier.
  2. Chen, Yongmin, 1997. "Equilibrium Product Bundling," The Journal of Business, University of Chicago Press, vol. 70(1), pages 85-103, January.
  3. Choi, Jay Pil, 1996. "Preemptive R&D, Rent Dissipation, and the "Leverage Theory."," The Quarterly Journal of Economics, MIT Press, vol. 111(4), pages 1153-81, November.
  4. Amelio, Andrea & Jullien, Bruno, 2007. "Tying and Freebies in Two-Sided Markets," IDEI Working Papers 445, Institut d'Économie Industrielle (IDEI), Toulouse.
  5. Dennis W. Carlton & Michael Waldman, 1998. "The Strategic Use of Tying to Preserve and Create Market Power in Evolving Industries," NBER Working Papers 6831, National Bureau of Economic Research, Inc.
  6. Doganoglu, Toker & Wright, Julian, 2010. "Exclusive dealing with network effects," International Journal of Industrial Organization, Elsevier, vol. 28(2), pages 145-154, March.
  7. Toker Doganoglu & Julian Wright, 2003. "Multihoming and compatibility," Departmental Working Papers wp0314, National University of Singapore, Department of Economics.
  8. Carbajo, Jose & de Meza, David & Seidmann, Daniel J, 1990. "A Strategic Motivation for Commodity Bundling," Journal of Industrial Economics, Wiley Blackwell, vol. 38(3), pages 283-98, March.
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Cited by:
  1. Maria Bas & Ivan Ledezma, 2007. "Market Access and the Evolution of within Plant Productivity in Chile," CESifo Working Paper Series 2077, CESifo Group Munich.

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