Abstract

http://ssrn.com/abstract=1318364
 
 

References (32)



 


 



Tie-In Contracts with Downstream Competition


Sreya Kolay


Paul Merage School of Business, University of California, Irvine.

September 2008


Abstract:     
A tie-in contract has recently come under scrutiny for its role as an exclusionary device. A firm that is a monopolist in a primary market can utilize such contracts to exclude a more efficient rival in a secondary market. When the firms sell through competing retailers, the leveraging firm may offer tie-in contracts to the retailers inducing them to purchase both primary and secondary products entirely from it such that the rival is excluded. Assuming both upstream firms to be strategic, we find that whether such tie-in contracts are profitable or not depends on the type of competition at the downstream level. When retailers compete in prices, a tie-in strategy becomes strictly more profitable regardless of commitment status and the difference in costs of the upstream firms. This results holds even when retailers are differentiated and price competition is less intense. When retailers compete in quantities, commitment and cost status become relevant. Under commitment, a tie-in strategy can be strictly inferior if the rival firm's cost is significantly lower. Absent commitment, a tie-in contract is not feasible.

Number of Pages in PDF File: 25

working papers series


Download This Paper

Date posted: December 21, 2008  

Suggested Citation

Kolay, Sreya, Tie-In Contracts with Downstream Competition (September 2008). Available at SSRN: http://ssrn.com/abstract=1318364 or http://dx.doi.org/10.2139/ssrn.1318364

Contact Information

Sreya Kolay (Contact Author)
Paul Merage School of Business, University of California, Irvine. ( email )
United States
HOME PAGE: http://sreya.kolay.googlepages.com
Feedback to SSRN


Paper statistics
Abstract Views: 383
Downloads: 43
References:  32

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo3 in 0.547 seconds