Integration, Complementary Products and Variety

Jeffrey Church and Neil Gandal

No 275554, Foerder Institute for Economic Research Working Papers from Tel-Aviv University > Foerder Institute for Economic Research

Abstract: This paper examines the incentives for integration when the market for both consumer durables and supporting or complementary services is oligopolistic. We find that the equilibrium industry structure will depend on the value that consumers place on variety. If the value of additional software is relatively small, the equilibrium industry structure is for both hardware firms to remain unintegrated, while if the value of additional software is relatively large, the equilibrium industry structure is for both hardware firms to integrate. Under the integrated industry structure, profits are lower, less varieties are provided, and hardware prices are lower than under the unintegrated industry structure. The game has a prisoners' dilemma structure when consumers place a high value on the variety of software. This is due to a foreclosure effect. Although consumer surplus is higher under an integrated industry structure, the total surplus associated with the unintegrated industry structure exceeds that of the Integrated industry structure.

Keywords: Consumer/Household Economics; Financial Economics (search for similar items in EconPapers)
Pages: 32
Date: 1992-01
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Citations: View citations in EconPapers (26)

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Related works:
Journal Article: Integration, Complementary Products, and Variety (1992)
Journal Article: Integration, Complementary Products, and Variety (1992)
Working Paper: Integration, Complementary Products and Variety (1992)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:isfiwp:275554

DOI: 10.22004/ag.econ.275554

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