Friday, October 22, 2010

Exclusivity and Exclusion on Platform Markets

Posted by D. Daniel Sokol

Subhasish M. Chowdhury (School of Economics, University of East Anglia) and Steven Martin (Purdue University) describe Exclusivity and Exclusion on Platform Markets.

ABSTRACT: We examine conditions under which a platform firm can exclude rivals by bundling a product that some on one side of the market regard as essential with its platform, and pursue implications for market performance. We show that the impact of an exclusive dealing contract between the upstream firm and one of the downstream firms on market performance depends on the strength of consumer preferences for the products of the two downstream firms and the relative size of the market segment for which the complementary consumption good is essential. In some cases this may reduce the net social welfare.

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