A Leverage Theory of Tying in Two-Sided Markets

Jay Choi and Doh-Shin Jeon

No HIAS-E-37, Discussion paper series from Hitotsubashi Institute for Advanced Study, Hitotsubashi University

Abstract: Motivated by the recent antitrust investigations concerning Google, we develop a leverage theory of tying in two-sided markets. In a setting where the "one monopoly profit result" holds otherwise, we uncover a new channel through which tying allows a monopolistic firm in one market to credibly leverage its monopoly power to another competing market if the latter is two-sided. In the presence of the nonnegative price constraint, tying provides a mechanism to circumvent the constraint in the tied product market without inviting an aggressive response by the rival firm. We identify conditions under which tying in two-sided markets is promotable and explore its welfare implications. In addition, we show that our model can be applied more widely 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 (search for similar items in EconPapers)
JEL-codes: D4 L1 L5 (search for similar items in EconPapers)
Pages: 55 pages
Date: 2016-11
New Economics Papers: this item is included in nep-com, nep-ind, nep-mic and nep-mkt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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https://hermes-ir.lib.hit-u.ac.jp/hermes/ir/re/28188/070_hiasDP-E-37.pdf

Related works:
Working Paper: A Leverage Theory of Tying in Two-Sided Markets (2016)
Working Paper: A Leverage Theory of Tying in Two-Sided Markets (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:hit:hiasdp:hias-e-37

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