Bundling and Foreclosure

Tina Kao () and Flavio Menezes ()

ANUCBE School of Economics Working Papers from Australian National University, College of Business and Economics, School of Economics

Abstract: We examine a two-sector model characterized by monopoly provision in market 1 and perfect competition in market 2. We follow the set up in Martin (1999), but we consider the case where goods 1 and 2 can be either substitutes or complements. With this framework, we analyse the profit sacrifice required if the monopolist offers a bundle consisting of one unit of good 1 and k units of good 2 to foreclose the competitive sector. Our results show that foreclosing rivals via bundling is less costly when products are complements rather than substitutes.

JEL-codes: L11 L12 L41 (search for similar items in EconPapers)
Date: 2006-06
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