Tying in two-sided markets with multi-homing

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. © 2010 The Author. The Journal of Industrial Economics © 2010 Blackwell Publishing Ltd. and the Editorial Board of The Journal of Industrial Economics.