Separating Complements: The Effects of Competition and Quality Leadership

Abstract

The law and economics literature on the tragedy of the anticommons suggests that producers of complementary goods should integrate themselves. Recent decisions by the antitrust authorities seem to indicate that there is tradeoff between the “tragedy” and the lack of competition which might exist in an integrated market structure. In this paper we analyze such tradeoff in oligopolistic complementary markets when products are vertically differentiated. We show that quality leadership plays a crucial role. When there is a quality leader, forcing divestitures or prohibiting mergers, thus increasing competition, lowers prices and enhances consumer surplus. However, when quality leadership is shared, “disintegrating” firms may lead to higher prices. Therefore, concerns about the tragedy of the anticommons are well posed in antitrust policies.

Keywords: , anticommons, competition, mergers, vertical differentiation

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