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Application Bundling in System Markets

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  • de Cornière, Alexandre
  • Taylor, Greg

Abstract

Motivated by recent investigations over Google's practices in the smartphone industry, we study bundling in markets for devices that allow consumers to use applications. The presence of applications on a device increases demand for it, and application developers earn revenues by interacting with consumers. A firm that controls multiple applications can offer them to device manufacturers either individually or as a bundle. We present a novel mechanism through which anti-competitive bundling can be profitable: Bundling reduces rival application developers' willingness to pay manufacturers for inclusion on their devices, and allows a multi-application developer to capture a larger share of industry profit. Bundling can also strengthen competition between manufacturers and thereby increase consumer surplus, even if it leads to foreclosure of application developers and a loss in product variety.

Suggested Citation

  • de Cornière, Alexandre & Taylor, Greg, 2017. "Application Bundling in System Markets," CEPR Discussion Papers 12129, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:12129
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    References listed on IDEAS

    as
    1. Joshua S. Gans & Stephen P. King, 2006. "Paying For Loyalty: Product Bundling In Oligopoly," Journal of Industrial Economics, Wiley Blackwell, vol. 54(1), pages 43-62, March.
    2. Doh-Shin Jeon & Domenico Menicucci, 2012. "Bundling and Competition for Slots," American Economic Review, American Economic Association, vol. 102(5), pages 1957-1985, August.
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    4. Abito, Jose Miguel & Wright, Julian, 2008. "Exclusive dealing with imperfect downstream competition," International Journal of Industrial Organization, Elsevier, vol. 26(1), pages 227-246, January.
    5. Jidong Zhou, 2017. "Competitive Bundling," Econometrica, Econometric Society, vol. 85, pages 145-172, January.
    6. Choi, Jay Pil & Stefanadis, Christodoulos, 2001. "Tying, Investment, and the Dynamic Leverage Theory," RAND Journal of Economics, The RAND Corporation, vol. 32(1), pages 52-71, Spring.
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    Cited by:

    1. Choi, Jay Pil & Jeon, Doh-Shin, 2020. "Platform Design Biases in Two-Sided Markets," TSE Working Papers 20-1143, Toulouse School of Economics (TSE).
    2. Jay Pil Choi & Doh-Shin Jeon, 2020. "Two-Sided Platforms and Biases in Technology Adoption," CESifo Working Paper Series 8559, CESifo.

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    More about this item

    Keywords

    Bundling; Antitrust; Mobile telecommunications;
    All these keywords.

    JEL classification:

    • L4 - Industrial Organization - - Antitrust Issues and Policies
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software

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