The Leverage Theory of Tying Revisited: Evidence from Newspaper Advertising

Data from the Canadian newspaper‐advertising industry is used to assess the private profitability of tying in a market where the standard efficiency motives (e.g., price discrimination, cost saving, and quality control) are unlikely to apply. The empirical assessment is based on a model of leveraging in which suppliers of the tied good are paid a commission rather than a fee for service. This model demonstrates that tying is profitable under a wide range of circumstances. Furthermore, it is found that, with newspapers, tying and monopoly power go hand in hand.