Leveraging Monopoly Power by Degrading Interoperability: Theory and Evidence from Computer Markets
77 Pages Posted: 12 Aug 2011
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Leveraging Monopoly Power by Degrading Interoperability: Theory and Evidence from Computer Markets
Date Written: August 2011
Abstract
When will a monopolist have incentives to foreclose a complementary market by degrading compatibility/interoperability of his products with those of rivals? We develop a framework where leveraging extracts more rents from the monopoly market by 'restoring' second degree price discrimination. In a random coefficient model with complements we derive a policy test for when incentives to reduce rival quality will hold. Our application is to Microsofts strategic incentives to leverage market power from personal computer to server operating systems. We estimate a structural random coefficients demand system which allows for complements (PCs and servers). Our estimates suggest that there were incentives to reduce interoperability which were particularly strong at the turn of the 21st Century.
Keywords: anti-trust, demand estimation, foreclosure, interoperability
JEL Classification: D43, L1, L4, O3
Suggested Citation: Suggested Citation
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