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Endogenous Integration and Welfare in Complementary Goods Markets

Ricardo Flores-Fillol () and Rafael Moner-Colonques

UFAE and IAE Working Papers from Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC)

Abstract: This paper analyzes the strategic decision to integrate by firms that produce complementary products. Integration entails bundling pricing. We find out that integration is privately profitable for a high enough degree of product differentiation, that profits of the non-integrated firms decrease, and that consumer surplus need not necessarily increase when firms integrate despite the fact that prices diminish. Thus, integration of a system is welfare-improving for a high enough degree of product differentiation combined with a minimum demand advantage relative to the competing system. Overall, and from a number of extensions undertaken, we conclude that bundling need not be anti-competitive and that integration should be permitted only under some circumstances.

Keywords: complementary products; integration; bundling (search for similar items in EconPapers)
JEL-codes: L13 L41 D43 (search for similar items in EconPapers)
Pages: 22
Date: 2006-02-01
New Economics Papers: this item is included in nep-com and nep-mic
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Persistent link: https://EconPapers.repec.org/RePEc:aub:autbar:658.06

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