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A Leverage Theory of Tying in Two-Sided Markets with Nonnegative Price Constraints

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  • Jay Pil Choi
  • Doh-Shin Jeon

Abstract

Motivated by recent antitrust cases in markets with zero-pricing, we develop a leverage theory of tying in two-sided markets. In the presence of the nonnegative price constraint, the Chicago school critique of tie-ins fails to hold. In the independent products case, tying provides a mechanism to circumvent the constraint in the tied market without inviting aggressive responses by the rival firm. In the complementary products case, the "price squeeze" mechanism cannot be used to extract surplus from the more efficient rival firm without tying. We identify conditions under which tying in two-sided markets is profitable and explore its welfare implications.

Suggested Citation

  • Jay Pil Choi & Doh-Shin Jeon, 2021. "A Leverage Theory of Tying in Two-Sided Markets with Nonnegative Price Constraints," American Economic Journal: Microeconomics, American Economic Association, vol. 13(1), pages 283-337, February.
    • Handle: RePEc:aea:aejmic:v:13:y:2021:i:1:p:283-337
    DOI: 10.1257/mic.20180234
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    Cited by:

    1. Miao, Chun-Hui, 2022. "The pricing of ancillary goods when selling on a platform," International Journal of Industrial Organization, Elsevier, vol. 83(C).
    2. Gregor Langus & Vilen Lipatov, 2021. "Does Envelopment through Data Advantage Call for New Regulation?," CESifo Working Paper Series 8932, CESifo.
    3. Kittaka, Yuta & Sato, Susumu & Zennyo, Yusuke, 2023. "Self-preferencing by platforms: A literature review," Japan and the World Economy, Elsevier, vol. 66(C).
    4. 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.
    5. 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.
    6. Claire Chambolle & Hugo Molina, 2021. "A Buyer Power Theory of Exclusive Dealing and Exclusionary Bundling," Working Papers hal-03231803, HAL.
    7. Jeon, Doh-Shin & Jullien, Bruno & Klimenko, Mikhail, 2021. "Language, internet and platform competition," Journal of International Economics, Elsevier, vol. 131(C).
    8. Etro, Federico, 2023. "Platform competition with free entry of sellers," International Journal of Industrial Organization, Elsevier, vol. 89(C).
    9. Peitz, Martin & Samkharadze, Lily, 2022. "Collusion between non-differentiated two-sided platforms," Economics Letters, Elsevier, vol. 215(C).
    10. 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).
    11. Chiara Fumagalli & Massimo Motta, 2024. "Economic Principles for the Enforcement of Abuse of Dominance Provisions," Working Papers 1431, Barcelona School of Economics.
    12. Gugler, Klaus & Szücs, Florian & Wohak, Ulrich, 2023. "Start-up Acquisitions, Venture Capital and Innovation: A Comparative Study of Google, Apple, Facebook, Amazon and Microsoft," Department of Economics Working Paper Series 340, WU Vienna University of Economics and Business.
    13. Etro, Federico, 2021. "Device-funded vs ad-funded platforms," International Journal of Industrial Organization, Elsevier, vol. 75(C).
    14. 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.
    15. 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.
    16. 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.
    17. 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.
    18. Bruno Jullien & Alessandro Pavan & Marc Rysman, 2021. "Two-sided markets, pricing, and network effects," Post-Print hal-03828345, HAL.
    19. Jay Pil Choi & Doh-Shin Jeon, 2022. "Platform Design Biases in Ad-Funded Two-Sided Markets," Post-Print hal-04018490, HAL.
    20. 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.
    21. 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).
    22. 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.
    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. Tirole, Jean & Bisceglia, Michele, 2023. "Fair Gatekeeping in Digital Ecosystems," TSE Working Papers 1452, Toulouse School of Economics (TSE).
    25. Jay Pil Choi & Doh-Shin Jeon, 2023. "Platform Design Biases in Ad-Funded Two-Sided Markets," Post-Print hal-04470490, HAL.

    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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