Equilibrium Foreclosure and Complementary Products

Jeffrey Church () and Neil Gandal
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Neil Gandal: Tel Aviv Univesity

Industrial Organization from EconWPA

Abstract: In this paper we address the possibility of horizontal foreclosure in markets for complementary services (software) where the consumption value of durables (hardware) depends on the availability of software. Horizontal foreclosure occurs when a hardware firm merges with a software firm and the integrated firm ceases to supply compatible software for a rival technology. We find that horizontal foreclosure can be an equilibrium outcome where both the merger and compatibility decisions are part of a multistage game which permits the foreclosed firm to play a number of counter-strategies. Moreover, foreclosure may result in monopolization of the hardware market. We find that the foreclosure equilibrium is inefficient: total surplus would be higher without foreclosure.

JEL-codes: L (search for similar items in EconPapers)
Date: Written
Note: 32 pages, LATEX file
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Related works:
Working Paper: Equilibrium Foreclosure and Complementary Products (1993)
Working Paper: Equilibrium Foreclosure and Complementary Products (1993)
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpio:9311001

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