37 Pages Posted: 17 Jun 2010
Date Written: June 16, 2010
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.
Keywords: complements, bundling, compatibility, complementary monopoly, foreclosure, vertical differentiation
JEL Classification: C7, D42, D43, K21, L11, L12, L13, L40, M21
Suggested Citation: Suggested Citation
Alvisi, Matteo and Carbonara, Emanuela, Bundling and Compatibility: Selling the Whole Package May Be Pro-Competitive (June 16, 2010). Available at SSRN: https://ssrn.com/abstract=1625844 or http://dx.doi.org/10.2139/ssrn.1625844