Imperfect Substitutes for Perfect Complements: Solving the Anticommons Problem

24 Pages Posted: 5 Jul 2013

See all articles by Matteo Alvisi

Matteo Alvisi

University of Bologna - Department of Economics

Emanuela Carbonara

University of Bologna - Department of Economics

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Date Written: July 2013

Abstract

An integrated monopoly, where two complements forming a composite good are offered by a single firm, is typically welfare superior to a complementary monopoly. This is ‘the tragedy of the anticommons’. We analyse the robustness of such result when competition is introduced for one or both complements. Particularly, competition in only one of the two markets may be welfare superior to an integrated monopoly if and only if the substitutes differ in their quality so that, as their number increases, average quality and/or quality variance increases. Then, absent an adequate level of product differentiation, favouring competition in some sectors while leaving monopolies in others may be detrimental for consumers and producers alike. Instead, competition in both markets may be welfare superior if goods are close substitutes and their number in each market is sufficiently high, no matter the degree of product differentiation.

Keywords: anticommons, complements and substitutes, price competition, product differentiation, welfare effects

JEL Classification: D43, K21, L13, L41

Suggested Citation

Alvisi, Matteo and Carbonara, Emanuela, Imperfect Substitutes for Perfect Complements: Solving the Anticommons Problem (July 2013). Bulletin of Economic Research, Vol. 65, Issue 3, pp. 256-279, 2013. Available at SSRN: https://ssrn.com/abstract=2290049 or http://dx.doi.org/10.1111/j.1467-8586.2011.00407.x

Matteo Alvisi (Contact Author)

University of Bologna - Department of Economics ( email )

Strada Maggiore 45
Bologna, BO 40126
Italy
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Emanuela Carbonara

University of Bologna - Department of Economics ( email )

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

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