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

Jay Pil Choi, Doh Shin Jeon

Research output: Contribution to journalArticlepeer-review

27 Citations (Scopus)

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.

Original languageEnglish
Pages (from-to)283-337
Number of pages55
JournalAmerican Economic Journal: Microeconomics
Volume13
Issue number1
DOIs
Publication statusPublished - 2021

Bibliographical note

Publisher Copyright:
© 2022

All Science Journal Classification (ASJC) codes

  • General Economics,Econometrics and Finance

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