"Seller-Side Tying of Platform Services, joint with Kinshuk Jerath and Greg Taylor"

Abstract :
This paper analyzes the practice of seller-side tying in digital platforms, where access to a core intermediation service is conditioned on the seller using ancillary services such as fulfillment or payment processing. We develop a model in which a monopoly platform intermediates transactions between consumers and competing sellers, and can choose whether to force the sellers to tie a costly ancillary service to the core offering. Consumers value the ancillary service heterogeneously, and seller adoption decisions generate vertical differentiation that affects market prices and consumer platform participation. We show that tying resolves under-adoption of the ancillary service, increases competition between sellers, and raises consumer surplus. In contrast, a ban on tying or a structural separation of the platform reduces service adoption and harms consumers. These results differ from consumer-side tying where, in our setting, bundling the core and ancillary services is neither profitable for the platform nor beneficial to consumers. The efficiency rationale for seller-side tying is robust under multiple variations of our main model.