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.
|Number of pages||55|
|Journal||American Economic Journal: Microeconomics|
|Publication status||Published - 2021|
Bibliographical noteFunding Information:
*Choi: Michigan State University, 220A Marshall-Adams Hall, East Lansing, MI 48824 and School of Economics, Yonsei University, Seoul, Korea (email: email@example.com); Jeon: Toulouse School of Economics, University of Toulouse Capitole, 1, Esplanade de l'Université, 31080 Toulouse Cedex 06, France (email: firstname.lastname@example.org). John Asker was coeditor for this article. We thank Bernard Caillaud, Federico Etro, Bruno Jullien, Massimo Motta, Andras Niedermayer, Volker Nocke, James Peck, Martin Peitz, Patrick Rey, Kyoungwon Rhee, Greg Taylor, Chengsi Wang, Huanxing Yang, and participants in various conferences and seminars for valuable discussions and comments. We are also grateful to two anonymous referees for constructive comments that greatly improved the paper. Luis Abreu, Taeyoon Hwang, and Sungwook Koh provided excellent research assistance. This work was supported by the Ministry of Education of the Republic of Korea and the National Research Foundation of Korea (NRF-2016S1A5A2A01022389). Jeon acknowledges the financial support of the Jean-Jacques Laffont Digital Chair and the funding from ANR under grant ANR-17-EURE-0010 (Investissements d’Avenir program).
All Science Journal Classification (ASJC) codes
- Economics, Econometrics and Finance(all)