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Summary

Summary. Model Setup: This is the first paper that considers (1) Tying, (2) Multi-homing, and (3) Two-sided network all in one model with two horizontally differentiated platforms. Main findings:

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Summary

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  1. Summary • Model Setup: This is the first paper that considers (1) Tying, (2) Multi-homing, and (3) Two-sided network all in one model with two horizontally differentiated platforms. • Main findings: • Under mild assumptions, tying is unambiguously welfare-reducing if multi-homing is not allowed. • In contrast, tying is welfare-enhancing when multi-homing is allowed.

  2. Tradeoffs, Intuition of Results:Tying with Single-Homing • (Lower welfare) Less variety: only one product in the equilibrium => higher transportation cost for customers • (Higher welfare) Savings of production cost:Content providers use only one platform  No multi-homing on the content side => reduce duplicate production cost. • (Ambiguous) The number of the contents :(1) More customers for proprietary content: Positive effect(2) No exclusive content B: Negative effect • Total effect is negative under some mild assumptions.

  3. Tradeoffs, Intuition of Results:Tying with Multi-Homing • (Lower Welfare) Tying increases traveling costs. Customers located closer to B buy A. • (Higher welfare) Savings of production cost:Content providers use only one platform  No multi-homing on the content side => reduce duplicate production cost. • (Higher welfare) Tying induces (1) more users of platform A (2) more multi-homing customers and thus more users of platform B in this model. • Total effect is positive under mild assumptions.

  4. Suggestion 1 • Common welfare loss due to tying and monopoly • Higher price in the consumer’s market and lower market coverage (market not fully covered) • Higher price in the content provider’s market and lead to less contents • Tying by monopoly might kill a “better” competing platform

  5. Suggestion 2 • Minor modification when “Real Player” is “better” in a Hotelling model. Platform A Windows Media Player Platform B Real Player Real Player is “better”: Customers are distributed from ½ to 1 WMP is “better”: Customers are distributed from 0 to ½ In general, customers are distributed from l to r

  6. Suggestion 3: Future Direction • Two platforms are vertically differentiated. • U = q*mi - p Or • U = q*(mi+qi) – p • q is uniformly distributed from 0 to 1 • Can tying a lower quality product kill a higher quality product? Multi-homing customers Customers buy high quality product Customers buy low quality product Customers do not buy any product

  7. Tying in Two-Sided Markets with Multi-Homing Author: Jay Pil Choi Michigan State University Discussant: Ke-Wei Huang IOMS, New York University

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