TYING IN TWO-SIDED MARKETS WITH MULTI-HOMING

Authors


  • *I thank Paul Belleflamme, Ke-Wei Huang, and participants in various conferences for their helpful and constructive comments. I am also grateful to the Editor and two anonymous referees for helpful comments that have improved the paper significantly. All remaining errors are mine. This research was partially funded by the NET Institute whose financial support is gratefully acknowledged.

Abstract

This paper analyzes the effects of tying on market competition and social welfare in two-sided markets when economic agents can engage in multi-homing by participating in multiple platforms to reap maximal network benefits. The model shows that tying induces more consumers to multi-home and makes platform-specific exclusive content available to more consumers, which is beneficial to content providers. As a result, tying can be welfare-enhancing if multi-homing is allowed, even in cases where its welfare impacts are negative in the absence of multi-homing. The analysis thus can have important implications for recent antitrust cases in industries where multi-homing is prevalent.

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