Abstract

http://ssrn.com/abstract=1625844
 
 

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Bundling and Compatibility: Selling the Whole Package May Be Pro-Competitive


Matteo Alvisi


University of Bologna - Department of Economics

Emanuela Carbonara


University of Bologna - Department of Economics

June 16, 2010


Abstract:     
In this paper we study price competition, equilibrium market configurations and entry decisions when firms compete in vertically-differentiated markets producing complementary goods. We show that allowing firms to sell complementary goods may be welfare-enhancing and pro-competitive. In fact, such strategy favors the entry of new firms producing lower-quality components. Moreover, this strategy increases consumer surplus, even when firms sell the two complements as a bundle. Interestingly, notwithstanding the increase in competition, it is always optimal for firms to enter a complementary good market. By discouraging such practices, antitrust authorities may harm both consumers and low-quality firms, at the same time undermining market stability.

Number of Pages in PDF File: 37

Keywords: complements, bundling, compatibility, complementary monopoly, foreclosure, vertical differentiation

JEL Classification: C7, D42, D43, K21, L11, L12, L13, L40, M21

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Date posted: June 17, 2010  

Suggested Citation

Alvisi, Matteo and Carbonara, Emanuela, Bundling and Compatibility: Selling the Whole Package May Be Pro-Competitive (June 16, 2010). Available at SSRN: http://ssrn.com/abstract=1625844 or http://dx.doi.org/10.2139/ssrn.1625844

Contact Information

Matteo Alvisi
University of Bologna - Department of Economics ( email )
Strada Maggiore 45
Bologna, BO 40126
Italy
+39 051 2092646 (Phone)
+39 051 2092664 (Fax)
Emanuela Carbonara (Contact Author)
University of Bologna - Department of Economics ( email )
Piazza Scaravilli 2
Bologna, 40126
Italy
+39 051 2098149 (Phone)
+39 051 2098040 (Fax)
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