Platform Tying and its Effects

We study on-platform tying by a dominant platform that controls a primary access point and operates an adjacent specialised service. A rival service can reach users both through the dominant platform and through a direct channel. In a two-sided market where platforms charge sellers and seller participation affects consumer demand, tying improves the integrated service, but also shifts demand away from the rival. We show that lower mediated demand reduces seller participation on the rival platform, weakening the rival also for users who access it directly. As a result, tying can reduce consumer surplus and welfare once the direct channel is sufficiently large. We also compare tying with demotion and with a common-access policy, and show that our main insights carry over to a one-sided model in which network effects operate among consumers who pay directly for the specialised service.