Application Bundling in System Markets

Alexandre de Cornière, and Greg Taylor

No 12129, CEPR Discussion Papers from Centre for Economic Policy Research

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 anti-competitive bundling can be profitable: Bundling reduces rival application developers' willingness to pay manufacturers for inclusion on their devices, and allows a multi-application 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: Bundling; Antitrust; Mobile telecommunications (search for similar items in EconPapers)
JEL-codes: L4 L86 (search for similar items in EconPapers)
Date: 2017-07
New Economics Papers: this item is included in nep-com, nep-ind, nep-mic, nep-mkt and nep-pay
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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