A Leverage Theory of Tying in Two-Sided Markets

53 Pages Posted: 25 Oct 2016

See all articles by Jay Pil Choi

Jay Pil Choi

Michigan State University - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Doh-Shin Jeon

Toulouse School of Economics (TSE); Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: September 15, 2016

Abstract

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.

Keywords: tying, leverage of monopoly power, two-sided markets, zero pricing, non-negative pricing constraint

JEL Classification: D400, L100, L500

Suggested Citation

Choi, Jay Pil and Jeon, Doh-Shin, A Leverage Theory of Tying in Two-Sided Markets (September 15, 2016). CESifo Working Paper Series No. 6073, Available at SSRN: https://ssrn.com/abstract=2858809 or http://dx.doi.org/10.2139/ssrn.2858809

Jay Pil Choi (Contact Author)

Michigan State University - Department of Economics ( email )

101 Marshall Hall
East Lansing, MI 48824
United States
517-353-7281 (Phone)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Doh-Shin Jeon

Toulouse School of Economics (TSE) ( email )

Place Anatole-France
Toulouse Cedex, F-31042
France

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
522
Abstract Views
1,471
Rank
102,050
PlumX Metrics