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Tying in Two-Sided Markets with Below-Cost or Negative Pricing

Author

Listed:
  • Jong-Hee Hahn

    (Yonsei Univ)

  • So Hye Yoon

    (Yonsei Univ)

Abstract

We show that tying can be profitable in two-sided markets even if below-cost or negative pricing is allowed. With the coexistence of two consumer groups (one treating tying and tied goods as perfect complements and the other as independent products), a tying-good monopolist may face difficulties in extracting rent and wish to use tying to directly capture the large advertising revenue created in the comple- mentary segment. Such tying normally reduces consumer surplus and total welfare. Our theory of tying can be applied to the practice of self-preferencing or requiring pre-installation as in the Google Android and Shopping cases.

Suggested Citation

  • Jong-Hee Hahn & So Hye Yoon, 2020. "Tying in Two-Sided Markets with Below-Cost or Negative Pricing," Working papers 2020rwp-177, Yonsei University, Yonsei Economics Research Institute.
    • Handle: RePEc:yon:wpaper:2020rwp-177
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    References listed on IDEAS

    as
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    6. Dennis W. Carlton & Michael Waldman, 2002. "The Strategic Use of Tying to Preserve and Create Market Power in Evolving Industries," RAND Journal of Economics, The RAND Corporation, vol. 33(2), pages 194-220, Summer.
    7. Dennis W. Carlton & Michael Waldman, 2012. "Upgrades, Switching Costs and the Leverage Theory of Tying," Economic Journal, Royal Economic Society, vol. 122(561), pages 675-706, June.
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    More about this item

    Keywords

    Tying; Bundling; Leverage theory; Two-sided markets; Negative prices; Platform envelopment; Self-preferencing; Raising rivals' Â’costs;
    All these keywords.

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L4 - Industrial Organization - - Antitrust Issues and Policies

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