Abstract

http://ssrn.com/abstract=1008831
 
 

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Why Tie a Product Consumers Do Not Use?


Dennis W. Carlton


University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

Joshua S. Gans


University of Toronto - Rotman School of Management; NBER

Michael Waldman


Cornell University - Samuel Curtis Johnson Graduate School of Management

August 2007

NBER Working Paper No. w13339

Abstract:     
This paper provides a new explanation for tying that is not based on any of the standard explanations -- efficiency, price discrimination, and exclusion. Our analysis shows how a monopolist sometimes has an incentive to tie a complementary good to its monopolized good in order to transfer profits from a rival producer of the complementary product to the monopolist. This occurs even when consumers -- who have the option to use the monopolist's complementary good -- do not use it. The tie is profitable because it alters the subsequent pricing game between the monopolist and the rival in a manner favorable to the monopolist. We show that this form of tying is socially inefficient, but interestingly can arise only when the tie is socially efficient in the absence of the rival producer. We relate this inefficient form of tying to several actual examples and explore its antitrust implications.

Number of Pages in PDF File: 34

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Date posted: August 24, 2007  

Suggested Citation

Carlton , Dennis W. and Gans, Joshua S. and Waldman, Michael, Why Tie a Product Consumers Do Not Use? (August 2007). NBER Working Paper No. w13339. Available at SSRN: http://ssrn.com/abstract=1008831

Contact Information

Dennis W. Carlton (Contact Author)
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
312-322-0215 (Phone)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Joshua S. Gans
University of Toronto - Rotman School of Management ( email )
Canada
HOME PAGE: http://www.joshuagans.com

NBER ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Michael Waldman
Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )
Ithaca, NY 14853
United States
607-255-8631 (Phone)
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