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A Leverage Theory of Tying in Two-Sided Markets

Jay Choi () and Doh-Shin Jeon

No 16-689, TSE Working Papers from Toulouse School of Economics (TSE)

Abstract: 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.

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)
Date: 2016-09, Revised 2018-03
New Economics Papers: this item is included in nep-mkt
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Working Paper: A Leverage Theory of Tying in Two-Sided Markets (2016) Downloads
Working Paper: A Leverage Theory of Tying in Two-Sided Markets (2016) Downloads
Working Paper: A Leverage Theory of Tying in Two-Sided Markets (2016) Downloads
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