Why Tie a Product Consumers Do Not Use?

34 Pages Posted: 24 Aug 2007  

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

Date Written: August 2007

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.

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: https://ssrn.com/abstract=1008831

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)

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Cambridge, MA 02138
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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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