A leverage theory of tying in two-sided markets

Jay Pil Choi, Doh-Shin Jeon

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.

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Year of publication:	September 2016
Authors:	Choi, Jay Pil ; Jeon, Doh-Shin
Publisher:	Munich : CESifo, Center for Economic Studies & Ifo Institute
Subject:	tying \| leverage of monopoly power \| two-sided markets \| zero pricing \| non-negative pricing constraint \| Google LLC \| Netzwerkökonomik \| Network economics \| Leistungsbündel \| Bundling strategy \| Niedrigpreisstrategie \| Low-cost strategy \| Monopol \| Monopoly \| Wohlfahrtsanalyse \| Welfare analysis \| Theorie \| Theory \| Suchmaschine \| Search engine \| Mobiltelefon \| Mobile phone \| Betriebssystem \| Operating system \| EU-Staaten \| EU countries