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Application Bundling in System Markets

Author

Listed:
  • de Cornière, Alexandre
  • Taylor, Greg

Abstract

Motivated by recent investigations over Google's practices in the smartphone industry, we study bundling in markets for devices that allow consumers to use applications. The presence of applications on a device increases demand for it, and application developers earn revenues by interacting with consumers. A firm that controls multiple applications can offer them to device manufacturers either individually or as a bundle. We present a novel mechanism through which anti-competitive bundling can be profitable: Bundling reduces rival application developers' willingness to pay manufacturers for inclusion on their devices, and allows a multi-application developer to capture a larger share of industry profit. Bundling can also strengthen competition between manufacturers and thereby increase consumer surplus, even if it leads to foreclosure of application developers and a loss in product variety.

Suggested Citation

  • de Cornière, Alexandre & Taylor, Greg, 2017. "Application Bundling in System Markets," CEPR Discussion Papers 12129, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:12129
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    References listed on IDEAS

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    1. Joshua S. Gans & Stephen P. King, 2006. "Paying For Loyalty: Product Bundling In Oligopoly," Journal of Industrial Economics, Wiley Blackwell, vol. 54(1), pages 43-62, March.
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    5. Dennis W. Carlton & Michael Waldman, 2002. "The Strategic Use of Tying to Preserve and Create Market Power in Evolving Industries," RAND Journal of Economics, The RAND Corporation, vol. 33(2), pages 194-220, Summer.
    6. Doh-Shin Jeon & Domenico Menicucci, 2012. "Bundling and Competition for Slots," American Economic Review, American Economic Association, vol. 102(5), pages 1957-1985, August.
    7. Jidong Zhou, 2017. "Competitive Bundling," Econometrica, Econometric Society, vol. 85, pages 145-172, January.
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    Cited by:

    1. Choi, Jay Pil & Jeon, Doh-Shin, 2020. "Platform Design Biases in Two-Sided Markets," TSE Working Papers 20-1143, Toulouse School of Economics (TSE).
    2. Jay Pil Choi & Doh-Shin Jeon, 2020. "Two-Sided Platforms and Biases in Technology Adoption," CESifo Working Paper Series 8559, CESifo.

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    JEL classification:

    • L4 - Industrial Organization - - Antitrust Issues and Policies
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software

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