Exclusive dealing in two-sided markets : for better or worse?

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2016-05

Authors

Shao, Lei, Ph. D.

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This dissertation explains new phenomena in platform industries such as wireless communication, video game, online video streaming, e-commerce, mobile app, and etc. It extends the frontier of economic studies in IT industry and gains new insights about classic industrial organization topics such as vertical integration, non-linear pricing, and product differentiation. The three chapters study platforms incentives to use exclusive contracts and the effects of exclusive dealings on consumer welfare in two-sided markets. Each focuses on a different aspect. The first chapter of my dissertation studies a different pro-competitive effect of exclusive contracts other than preventing free riding or inefficient contracting. In two-sided markets, when content providers have heterogeneous interaction benefits (i.e. some content providers benefits more from their interactions with consumers), platforms could use exclusive contracts in addition to non-exclusive contracts to "price discriminate" content providers. This could increase the number of participating content providers, which increases both consumer welfare and social welfare through the network effects. The second chapter of my dissertation investigates the effects of content heterogeneity on platforms' competition strategies and explains why many two-sided markets do not tip. Exclusive content appealing to the general public could enhance network effects. On the other hand, exclusive distinctive content could differentiate platforms. Thus, if there exists sufficiently contrasting content, both platforms would choose differentiation in equilibrium in order to soften competition and popular content would turn out to be non-exclusive so that the market does not tip. The third chapter of my dissertation explains why even though exclusive dealing has many benefits to firms, platforms in two-sided markets do not use "forced exclusivity" contracts. Instead, they negotiate both exclusive and non-exclusive contracts with content providers and let content providers decide which type of contract to sign. In addition, smaller bargaining power of platforms, difference in amounts of proprietary content, or consumer surplus per content makes content providers more willing to sign non-exclusive contracts.

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