Upgrades, Switching Costs and the Leverage Theory of Tying

32 Pages Posted: 3 Jun 2012

See all articles by Dennis W. Carlton

Dennis W. Carlton

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

Michael Waldman

Cornell University - Samuel Curtis Johnson Graduate School of Management

Date Written: June 2012

Abstract

This article investigates the role of product upgrades and consumer switching costs in the tying of complementary products. Previous analyses have found that a monopolist of one product will not increase its profits and reduce social welfare by tying and leveraging its monopoly position into a complementary market if the initial monopolised product is essential, where essential means that all uses of the complementary good require the initial monopolised product. We show that this is not true in settings characterised by product upgrades and consumer switching costs. We also discuss various extensions including the role of the reversibility of tying.

Suggested Citation

Carlton, Dennis W. and Waldman, Michael, Upgrades, Switching Costs and the Leverage Theory of Tying (June 2012). The Economic Journal, Vol. 122, Issue 561, pp. 675-706, 2012. Available at SSRN: https://ssrn.com/abstract=2073100 or http://dx.doi.org/10.1111/j.1468-0297.2011.02481.x

Dennis W. Carlton (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
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312-322-0215 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
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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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