A Leverage Theory of Tying in Two-Sided Markets with Nonnegative Price Constraints

Jay Pil Choi and Doh-Shin Jeon

American Economic Journal: Microeconomics, 2021, vol. 13, issue 1, 283-337

Abstract: Motivated by recent antitrust cases in markets with zero-pricing, we develop a leverage theory of tying in two-sided markets. In the presence of the nonnegative price constraint, the Chicago school critique of tie-ins fails to hold. In the independent products case, tying provides a mechanism to circumvent the constraint in the tied market without inviting aggressive responses by the rival firm. In the complementary products case, the "price squeeze" mechanism cannot be used to extract surplus from the more efficient rival firm without tying. We identify conditions under which tying in two-sided markets is profitable and explore its welfare implications.

JEL-codes: D42 K21 L12 L41 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (35)

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Working Paper: A Leverage Theory of Tying in Two-sided Markets with Non-Negative Price Constraints (2021)
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DOI: 10.1257/mic.20180234

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