Tying in Evolving Industries, When Future Entry Cannot be Deterred

Chiara Fumagalli () and Massimo Motta ()
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Chiara Fumagalli: Università Bocconi, CSEF and CEPR

CSEF Working Papers from Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy

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: 2019-10-30
New Economics Papers: this item is included in nep-bec, nep-com, nep-law and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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http://www.csef.it/WP/wp548.pdf (application/pdf)

Related works:
Journal Article: Tying in evolving industries, when future entry cannot be deterred (2020)
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:sef:csefwp:548

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