A Welfare Evaluation of Tying Strategies
34 Pages Posted: 8 Oct 2015 Last revised: 24 Jul 2016
Date Written: July 23, 2016
We compare monopoly profit, consumer surplus, and total welfare associated with three commonly-used tying strategies: no tying, pure tying, and mixed tying. Whereas previous literature focused mainly on profit comparisons, this paper evaluates the relationship between component production costs and total welfare. We identify several market failures where the seller does not adopt the welfare-maximizing tying strategy. Finally, we explore how consumer exclusion rates (uncaptured market) are affected by tying strategy and some implications for unbudling regulation.
Keywords: Tying strategies, bundling, price discrimination, pure tying, mixed tying
JEL Classification: D4, L11
Suggested Citation: Suggested Citation