A Welfare Evaluation of Tying Strategies

34 Pages Posted: 8 Oct 2015 Last revised: 24 Jul 2016

See all articles by Amit Gayer

Amit Gayer

Western Galilee College

Oz Shy

Federal Reserve Banks - Federal Reserve Bank of Atlanta

Date Written: July 23, 2016

Abstract

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

Gayer, Amit and Shy, Oz, A Welfare Evaluation of Tying Strategies (July 23, 2016). Available at SSRN: https://ssrn.com/abstract=2670364 or http://dx.doi.org/10.2139/ssrn.2670364

Amit Gayer

Western Galilee College ( email )

P.O. Box 2125
Acre, North 24121
Israel

Oz Shy (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Atlanta ( email )

1000 Peachtree Street N.E.
Atlanta, GA 30309-4470
United States

HOME PAGE: http://https://www.frbatlanta.org/research/economists/shy-oz.aspx

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