The Strategic Use of Tying to Preserve and Create Market Power in Evolving Industries
Dennis W. Carlton
University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)
Cornell University - Samuel Curtis Johnson Graduate School of Management
RAND Journal of Economics, Vol. 33, No. 2
This article investigates how the tying of complementary products can be used to preserve and create monopoly positions. We first show how a monopolist of a product in the current period can use tying to preserve its monopoly in the future. We then show how a monopolist in one market can employ tying to extend its monopoly into a newly emerging market. Our analysis explains how a dominant firm can use tying to remain dominant in an industry undergoing rapid technological change. The analysis focuses on entry costs and network externalities. We also relate our analysis to the Microsoft case.
Date posted: May 7, 2002