Application Bundling in System Markets

28 Pages Posted: 10 Jul 2017

See all articles by Alexandre de Corniere

Alexandre de Corniere

Toulouse School of Economics

Greg Taylor

University of Oxford - Oxford Internet Institute

Date Written: July 2017

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 anticompetitive bundling can be profitable: Bundling reduces rival application developers' willingness to pay manufacturers for inclusion on their devices, and allows a multiapplication 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.

Keywords: Antitrust, Bundling, Mobile telecommunications

JEL Classification: L4, L86

Suggested Citation

de Corniere, Alexandre and Taylor, Greg, Application Bundling in System Markets (July 2017). CEPR Discussion Paper No. DP12129. Available at SSRN: https://ssrn.com/abstract=2999658

Alexandre De Corniere (Contact Author)

Toulouse School of Economics ( email )

Place Anatole-France
Toulouse Cedex, F-31042
France

Greg Taylor

University of Oxford - Oxford Internet Institute ( email )

1 St. Giles
University of Oxford
Oxford OX1 3PG Oxfordshire, Oxfordshire OX1 3JS
United Kingdom

HOME PAGE: http://www.greg-taylor.co.uk

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