Preemptive R&D, Rent Dissipation, and the "Leverage Theory"

Jay Choi

The Quarterly Journal of Economics, 1996, vol. 111, issue 4, 1153-1181

Abstract: This paper provides a new perspective on the validity of the so-called leverage theory. In a model of preemptive innovation in "systems" markets, I examine the effect of bundling on R&D incentives. I find that bundling provides a channel through which monopoly "slack" in one component market can be shifted to another, with the effect of mitigating rent dissipation in the systems market. Bundling can be profitable if this beneficial effect of reduced rent dissipation outweighs the negative effect of intensified price competition. After demonstrating the private optimality of bundling, its welfare implications are considered. Finally, the results can be reinterpreted to analyze the relationship between compatibility decisions and R&D incentives in mix-and-match models.

Date: 1996
References: Add references at CitEc
Citations: View citations in EconPapers (30)

Downloads: (external link)
http://hdl.handle.net/10.2307/2946711 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Preemptive R&D, Rent Dissipation and the "Leverage Theory" (1995)
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:oup:qjecon:v:111:y:1996:i:4:p:1153-1181.

Ordering information: This journal article can be ordered from
https://academic.oup.com/journals

Access Statistics for this article

The Quarterly Journal of Economics is currently edited by Robert J. Barro, Lawrence F. Katz, Nathan Nunn, Andrei Shleifer and Stefanie Stantcheva

More articles in The Quarterly Journal of Economics from President and Fellows of Harvard College
Bibliographic data for series maintained by Oxford University Press ().