On Stability in Competition: Tying and Horizontal Product Differentiation

Alain Egli

Diskussionsschriften from Universitaet Bern, Departement Volkswirtschaft

Abstract: We combine Hotelling's model of product differentiation with tie-in sales. Tie-in sales condition the sale of one good upon the purchase of another good. In equilibrium firms choose zero product differentiation. Due to the tying structure no firm can gain the whole market by a small price reduction. Then we address the following questions: Can a firm with monopoly power in one market leverage this power into another market where it faces competition. What is the effect from tying on the profits of the monopolist's rival. In our model this effect is ambiguous

Keywords: Horizontal product differentiation; tie-in sales; leverage theory of tying; foreclosure (search for similar items in EconPapers)
JEL-codes: D43 L11 L12 L13 (search for similar items in EconPapers)
Date: 2005-01
New Economics Papers: this item is included in nep-com, nep-ind and nep-mic
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