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  3. American Economic Journal: Microeconomics
  4. February 2021
  5. A Leverage Theory of Tying in Two-Sided Markets with Nonnegative Price Constraints

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

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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.

Citation

Choi, Jay Pil, and Doh-Shin Jeon. 2021. "A Leverage Theory of Tying in Two-Sided Markets with Nonnegative Price Constraints." American Economic Journal: Microeconomics, 13 (1): 283-337. DOI: 10.1257/mic.20180234

Additional Materials

JEL Classification

  • D42 Market Structure, Pricing, and Design: Monopoly
  • K21 Antitrust Law
  • L12 Monopoly; Monopolization Strategies
  • L41 Monopolization; Horizontal Anticompetitive Practices
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