Bundling, à la carte pricing and vertical bargaining in a two-sided model

We develop a two-sided market model with an upstream–downstream structure. More specifically, the platform consists of two rival upstream firms and a downstream monopolist. Each upstream firm negotiates the input price (license fee) with the downstream monopolist and also chooses the amount of adver...

Full description

Saved in:
Bibliographic Details
Published in:Information economics and policy 2016-06, Vol.35, p.30-44
Main Authors: Chen, Minghua, Rennhoff, Adam D., Serfes, Konstantinos
Format: Article
Language:English
Subjects:
Advertising
Bundling
Economic models
Incentives
Market structure
Media rights
Monopolies
Negotiation
Networks
Political platform
Prices
Profits
Regulation
Service introduction
Studies
Television
Television networks
Two-sided market
Vertical relations
À la carte regulation
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:We develop a two-sided market model with an upstream–downstream structure. More specifically, the platform consists of two rival upstream firms and a downstream monopolist. Each upstream firm negotiates the input price (license fee) with the downstream monopolist and also chooses the amount of advertising that is embedded in the good it sells to the downstream monopolist. The downstream monopolist can offer the two goods either on an à la carte basis or as a bundle. We use this model to understand the incentives to bundle and the welfare properties of bundling in a two-sided market framework. We also contribute to the ongoing debate on à la carte pricing in the TV industry, where the two upstream firms can be viewed as two rival TV networks and the downstream monopolist as a cable operator. We show that an à la carte regulation will raise consumer surplus and downstream profit, while it will decrease the profits of the upstream TV networks.
ISSN:0167-6245
1873-5975
DOI:10.1016/j.infoecopol.2016.03.001