A Leverage Theory of Tying in Two-Sided Markets

Choi, Jay Pil and Jeon, Doh-Shin (2016) A Leverage Theory of Tying in Two-Sided Markets. TSE Working Paper, n. 16-689

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Official URL: http://tse-fr.eu/pub/30704


Partly motivated by the recent antitrust investigations concerning Google, we develop a leverage theory of tying in two-sided markets. We analyze incentives for a monopolist to tie its monopolized product with another product in a two-sided market. Tying provides a mechanism to circumvent the non-negative price constraint in the tied product market without inviting an aggressive response as the rival firm faces the non-negative price constraint. We identify conditions under which tying in two-sided markets is profitable and explore its welfare implications. Our mechanism can be more widely applied to any markets in which sales to consumers in one market can generate additional revenues that cannot be competed away due to non-negative price constraints.

Item Type: Monograph (Working Paper)
Language: English
Date: September 2016
Uncontrolled Keywords: Tying, Leverage of monopoly power, Two-sided markets, Zero pricing, Non-negative pricing constraint
JEL codes: D4 - Market Structure and Pricing
L1 - Market Structure, Firm Strategy, and Market Performance
L5 - Regulation and Industrial Policy
Divisions: TSE-R (Toulouse)
Institution: Université Toulouse Capitole
Site: UT1
Date Deposited: 06 Sep 2016 08:08
Last Modified: 23 Jul 2018 13:07
OAI ID: oai:tse-fr.eu:30704
URI: http://publications.ut-capitole.fr/id/eprint/22342

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