Tying in evolving industries, when future entry cannot be deterred

Chiara Fumagalli and Massimo Motta ()

International Journal of Industrial Organization, 2020, vol. 73, issue C

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 (search for similar items in EconPapers)
JEL-codes: K21 L41 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
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)
Working Paper: Tying in Evolving Industries, When Future Entry Cannot be Deterred (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:indorg:v:73:y:2020:i:c:s0167718719300955

DOI: 10.1016/j.ijindorg.2019.102567

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