Tying in evolving industries, when future entry cannot be deterred

Chiara Fumagalli and Massimo Motta (massimo.motta@upf.edu)

No 654, Working Papers from IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University

Abstract: We show that the incentive to engage in exclusionary tying (of two complementary products) may arise even when tying cannot be used as a defensive strategy to protect the incumbent's dominant position in the primary market. By engaging in tying, an incumbent firm sacrifices current profits but can exclude a more efficient rival from a complementary market by depriving it of the critical scale it needs to be successful. In turn, exclusion in the complementary market allows the incumbent to be in a favorable position when a more efficient rival will enter the primary market, and to appropriate some of the rival's efficiency rents. The paper also shows that tying is a more profitable exclusionary strategy than pure bundling, and that exclusion is the less likely the higher the proportion of consumers who multi-home. Keywords:Inefficient foreclosure, Tying, Scale economies, Network Externalities. JEL Codes: K21, L41

Date: 2019
New Economics Papers: this item is included in nep-bec, nep-com and nep-mic
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://repec.unibocconi.it/igier/igi/wp/2019/654.pdf (application/pdf)

Related works:
Journal Article: Tying in evolving industries, when future entry cannot be deterred (2020)
Working Paper: Tying in evolving industries, when future entry cannot be deterred (2019)
Working Paper: Tying in evolving industries, when future entry cannot be deterred (2019)
Working Paper: Tying in Evolving Industries, When Future Entry Cannot be Deterred (2019)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:igi:igierp:654

Ordering information: This working paper can be ordered from
https://repec.unibocconi.it/igier/igi/
igier@unibocconi.it

Access Statistics for this paper

More papers in Working Papers from IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University via Rontgen, 1 - 20136 Milano (Italy).
Bibliographic data for series maintained by (igier@unibocconi.it).