Tying and Freebies in Two-Sided Markets
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.
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|Date of creation:||Mar 2007|
|Date of revision:|
|Publication status:||Published in International Journal of Industrial Organization, vol. 30, 2012, p. 436-446.|
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