Author(s)
Source
NET Institute Working Paper #06-04, 2006
Summary
This paper asks whether consumers’ willingness to buy several similar products affects competition.
Policy Relevance
Regulators will over-burden basic technology with costly regulation to control monopoly if they overlook how users and markets bypass limits on their choices.
Main Points
- Firms can require consumers to buy product Y when the consumer buys product X, even if the consumer didn’t want Y (“tying”).
- Products used by two different groups make “two-sided markets.” Microsoft’s Windows is used by software developers and by consumers: Windows is a “two-sided platform.”
- The paper shows how both groups of users respond to tying of X and Y in two-sided markets:
- Consumers buy competing product Z, even if it is similar to Y. Microsoft sold its Media Player along with Windows, but many consumers also have Adobe’s RealPlayer.
- Content providers make products that work with both Y and Z.
- The tying firm looks for more content that works only with Y. Consumers benefit from more choice.