Complementing Substitutes: Bundling, Compatibility, and Entry

51 Pages Posted: 1 Jul 2009 Last revised: 30 Mar 2011

Emanuela Carbonara

University of Bologna - Department of Economics

Giuseppe Dari‐Mattiacci

Amsterdam Law School; Amsterdam Business School; Tinbergen Institute

Francesco Parisi

University of Minnesota - Law School; University of Bologna

Matteo Alvisi

University of Bologna - Department of Economics

Date Written: June 5, 2009

Abstract

In this paper we study price competition, equilibrium market configurations and entry when firms compete in vertically-di¤erentiated markets producing complementary goods. We consider two complements and start from a configuration where the market for one complement is a duopoly, whereas the other is a monopoly. In such framework, when products are highly di¤erentiated, the low-quality duopolist is always pushed out. We then allow for competition between complements on both sides of the market: one of the duopolists starts to produce also the other complement and decides whether to offer its two products as a bundle or to allow consumers to combine them with complements from other producers. We prove that this strategy always allows the low-quality duopolist to stay in the market, no matter if the duopolist producing both complements is the high or the low-quality one. Moreover, this strategy always increases consumer surplus, even when the duopolist sells the two complements only as a bundle.

Keywords: complements, bundling, anticommons, antitrust, integration, vertical differentiation

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

Suggested Citation

Carbonara, Emanuela and Dari‐Mattiacci, Giuseppe and Parisi, Francesco and Alvisi, Matteo, Complementing Substitutes: Bundling, Compatibility, and Entry (June 5, 2009). Amsterdam Center for Law & Economics Working Paper No. 2009-10. Available at SSRN: https://ssrn.com/abstract=1415925 or http://dx.doi.org/10.2139/ssrn.1415925

Emanuela Carbonara

University of Bologna - Department of Economics ( email )

Piazza Scaravilli 2
Bologna, 40126
Italy
+39 051 2098149 (Phone)
+39 051 2098040 (Fax)

Amsterdam Business School ( email )

Roetersstraat 18
Amsterdam, 1018WB
Netherlands

Tinbergen Institute

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

Francesco Parisi

University of Minnesota - Law School ( email )

229 19th Avenue South
Minneapolis, MN 55455
United States

University of Bologna ( email )

Piazza Scaravilli 1
40126 Bologna, fc 47100
Italy

Matteo Alvisi

University of Bologna - Department of Economics ( email )

Strada Maggiore 45
Bologna, BO 40126
Italy
+39 051 2092646 (Phone)
+39 051 2092664 (Fax)

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