Leveraging Monopoly Power by Degrading Interoperability: Theory and Evidence from Computer Markets

75 Pages Posted: 5 Jul 2011

See all articles by Christos Genakos

Christos Genakos

Cambridge Judge Business School; Athens University of Economics and Business (AUEB); Center for Economic Policy Research (CEPR); Center for Economic Performance (CEP)

Kai-Uwe Kuhn

University of East Anglia (UEA) - Centre for Competition Policy; Centre for Economic Policy Research (CEPR)

John Van Reenen

London School of Economics - Centre for Economic Performance (CEP); Stanford Graduate School of Business; Institute for Fiscal Studies (IFS); Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 3 versions of this paper

Date Written: June 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 Microsoft's 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.

Suggested Citation

Genakos, Christos and Kuhn, Kai-Uwe and Van Reenen, John Michael, Leveraging Monopoly Power by Degrading Interoperability: Theory and Evidence from Computer Markets (June 2011). NBER Working Paper No. w17172. Available at SSRN: https://ssrn.com/abstract=1879034

Christos Genakos

Cambridge Judge Business School ( email )

Trumpington Street
Cambridge, CB2 1AG
United Kingdom

Athens University of Economics and Business (AUEB) ( email )

76 Patission Street
Athens, 104 34
Greece

HOME PAGE: http://www.aueb.gr/users/cgenakos

Center for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Center for Economic Performance (CEP) ( email )

Houghton Street
London WC2A 2AE
United Kingdom

Kai-Uwe Kuhn

University of East Anglia (UEA) - Centre for Competition Policy ( email )

UEA
Norwich Research Park
Norwich, Norfolk NR47TJ
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

John Michael Van Reenen

London School of Economics - Centre for Economic Performance (CEP) ( email )

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London WC2A 2AE
United Kingdom
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+44 20 7955 6848 (Fax)

Stanford Graduate School of Business ( email )

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Institute for Fiscal Studies (IFS) ( email )

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London, WC1E 7AE
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+44 20 7240 6136 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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