Working paper

Application bundling in system markets

Alexandre Cornière (de), and Greg Taylor

Abstract

Motivated by recent investigations over Google's practices in the smartphone industry, we study bundling in markets for devices that allow consumers to use applications. The presence of applications on a device increases demand for it, and application developers earn revenues by interacting with consumers. A firm that controls multiple applications can offer them to device manufacturers either individually or as a bundle. We present a novel mechanism through which anticompetitive bundling can be profitable: Bundling reduces rival application developers' willingness to pay manufacturers for inclusion on their devices, and allows a multiapplication developer to capture a larger share of industry profit. Bundling can also strengthen competition between manufacturers and thereby increase consumer surplus, even if it leads to foreclosure of application developers and a loss in product variety

Reference

Alexandre Cornière (de), and Greg Taylor, Application bundling in system markets, TSE Working Paper, n. 17-827, July 2017.

See also

Published in

TSE Working Paper, n. 17-827, July 2017