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Tying and freebies in two-sided markets

Author

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  • Amelio, Andrea
  • Jullien, Bruno

Abstract

In two-sided markets where platforms are constrained to set non-negative prices, tying can be deployed by platforms as a tool to introduce implicit subsidies. For a monopoly, this raises participation and benefits consumers on both sides. In a duopoly, tying on one side makes a platform more or less competitive on the other side depending on externalities. Tying may not be ex-ante optimal while the competing platform may benefit from it. The impact on consumers' surplus depends on whether competition is softened or intensified on the profitable side. Moreover tying increases total welfare if network effects are strong.

Suggested Citation

  • Amelio, Andrea & Jullien, Bruno, 2012. "Tying and freebies in two-sided markets," International Journal of Industrial Organization, Elsevier, vol. 30(5), pages 436-446.
  • Handle: RePEc:eee:indorg:v:30:y:2012:i:5:p:436-446
    DOI: 10.1016/j.ijindorg.2012.03.002
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    References listed on IDEAS

    as
    1. Amelio, Andrea & Jullien, Bruno, 2012. "Tying and freebies in two-sided markets," International Journal of Industrial Organization, Elsevier, vol. 30(5), pages 436-446.
    2. Milgrom, Paul & Shannon, Chris, 1994. "Monotone Comparative Statics," Econometrica, Econometric Society, vol. 62(1), pages 157-180, January.
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    6. Whinston, Michael D, 1990. "Tying, Foreclosure, and Exclusion," American Economic Review, American Economic Association, vol. 80(4), pages 837-859, September.
    7. Jay Pil Choi, 2010. "TYING IN TWO-SIDED MARKETS WITH MULTI-HOMING -super-," Journal of Industrial Economics, Wiley Blackwell, vol. 58(3), pages 607-626, September.
    8. Bruno Jullien, 2005. "Two-sided Markets and Electronic Intermediaries," CESifo Economic Studies, CESifo, vol. 51(2-3), pages 233-260.
    9. Bruno Jullien, 2011. "Competition in Multi-sided Markets: Divide and Conquer," American Economic Journal: Microeconomics, American Economic Association, vol. 3(4), pages 186-220, November.
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    12. William James Adams & Janet L. Yellen, 1976. "Commodity Bundling and the Burden of Monopoly," The Quarterly Journal of Economics, Oxford University Press, vol. 90(3), pages 475-498.
    13. Evans David S., 2003. "Some Empirical Aspects of Multi-sided Platform Industries," Review of Network Economics, De Gruyter, vol. 2(3), pages 1-19, September.
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    Citations

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    Cited by:

    1. Choi, Jay Pil & Jeon, Doh-Shin, 2016. "A Leverage Theory of Tying in Two-Sided Markets," TSE Working Papers 16-689, Toulouse School of Economics (TSE), revised Mar 2018.
    2. Anderson, Simon P. & Jullien, Bruno, 2016. "The advertising-financed business model in two-sided media markets," TSE Working Papers 16-632, Toulouse School of Economics (TSE).
    3. Buechel, Berno & Klein, Jan, 2014. "Do Consumers' Preferences Really Matter? - A Note on Spatial Competition with Restricted Strategies," MPRA Paper 55288, University Library of Munich, Germany.
    4. Jullien, Bruno, 2008. "Price Skewness and Competition in Multi-Sided Markets," IDEI Working Papers 504, Institut d'Économie Industrielle (IDEI), Toulouse.
    5. Chen, Minghua & Rennhoff, Adam D. & Serfes, Konstantinos, 2016. "Bundling, à la carte pricing and vertical bargaining in a two-sided model," Information Economics and Policy, Elsevier, vol. 35(C), pages 30-44.
    6. Pierre Andreoletti & Pierre Gaze & Maxime Menuet, 2015. "Can a Platform Make Profit with Consumer' Mobility? A Two-Sided Monopoly Model with Random Endogenous Side-Swiching," Working Papers halshs-01206576, HAL.
    7. Bruno Jullien, 2011. "Competition in Multi-sided Markets: Divide and Conquer," American Economic Journal: Microeconomics, American Economic Association, vol. 3(4), pages 186-220, November.
    8. Economides, Nicholas & Tåg, Joacim, 2012. "Network neutrality on the Internet: A two-sided market analysis," Information Economics and Policy, Elsevier, vol. 24(2), pages 91-104.
    9. Jullien, Bruno, 2010. "Two-Sided B2B Platforms," IDEI Working Papers 652, Institut d'Économie Industrielle (IDEI), Toulouse, revised Mar 2011.
    10. Amelio, Andrea & Jullien, Bruno, 2012. "Tying and freebies in two-sided markets," International Journal of Industrial Organization, Elsevier, vol. 30(5), pages 436-446.
    11. Jullien, Bruno & Pavan, Alessandro, 2013. "Platform Pricing under Dispersed Information," IDEI Working Papers 793, Institut d'Économie Industrielle (IDEI), Toulouse.
    12. Andre Boik, 2018. "Prediction and Identification in Two-Sided Markets," CESifo Working Paper Series 6857, CESifo Group Munich.
    13. Gabrielsen, Tommy S. & Johansen, Bjørn Olav & Lømo, Teis L., 2015. "Resale price maintenance in two-sided markets," Working Papers in Economics 08/15, University of Bergen, Department of Economics.
    14. David S. Evans & Richard Schmalensee, 2013. "The Antitrust Analysis of Multi-Sided Platform Businesses," NBER Working Papers 18783, National Bureau of Economic Research, Inc.
    15. Caccinelli, Chiara & Toledano, Joëlle, 2017. "Assessing Anticompetitive Practices in Two-Sided Markets: A Comparative Analysis of four Antitrust Proceedings against Booking.com," 28th European Regional ITS Conference, Passau 2017 169452, International Telecommunications Society (ITS).

    More about this item

    Keywords

    Tying; Two-sided market; Platform competition;

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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