Three essays on bundling and two-sided markets

This work addresses three issues regarding bundling and two-sided markets. It starts with a brief summary of the theories of bundling and of two-sided markets in Chapter 1.; Chapter 2 analyzes various aspects of bundling strategy by the monopolist of a primary good when it faces competition in the complementary good market. The main result is that the monopolist can use a bundling strategy in order to avoid commitment problem that arises in optimal pricing. Bundling increases the monopolist's profits without the rival's exit from the market. Bundling lowers social welfare in most cases, while it may increase consumers' surplus. One of the long-run effects of bundling is that it lowers both firms' incentives to invest in R&D.; Chapter 3 compares welfare implications of monopoly outcome and competitive outcome. Using a model of the credit card industry with various settings such as Bertrand and Hotelling competition with single-homing and multi-homing consumers as well as proprietary and nonproprietary platforms, it is shown that introducing platform competition in two-side markets may lower social welfare compared to the case of monopoly platform. In most cases, monopoly pricing maximizes Marshallian social welfare since the monopolist in a two-sided market can properly internalize indirect network externalities by setting unbiased prices, while the competing platforms set biased prices in order to attract the single-homing side.; Chapter 4 analyzes the effects of distribution of consumers' expenditure volumes on the market outcomes using a model in which two card issuers compete a la Hotelling. The result shows that the effects of distribution of the expenditure volume are different for various cases of market coverage. For example, as the variance increases, issuers' profits decrease when the market is fully covered, while the profits increase when the market is locally monopolized. It is also shown that the neutrality of the interchange fee holds in the full-cover market under the no-surcharge-rule. Simulation results are provided to show other comparative statics that include the possibility of the positive relationship between the interchange fee and the cardholder fee.; Finally, Chapter 5 summarizes major findings with some policy implications.