Upstream Bundling and Leverage of Market Power
22 Pages Posted: 31 Jul 2018
Date Written: July 2018
Motivated by the recent Google-Android antitrust case, we present a novel rationale for bundling by a multiproduct upstream firm. Consider a market where downstream firms procure components from upstream suppliers. U1 is the only supplier of component A, but faces competition for component B. Suppose that component A increases demand for the downstream product and that contractual frictions induce positive wholesale markups. By bundling A and B, U1 reduces its B-rivals' willingness to offer slotting fees to the downstream firm, thereby allowing U1 to capture more of the industry profit. Bundling harms the downstream firm and the B rivals, and can be anticompetitive.
Keywords: Bundling, Exclusion, Vertical Relations
JEL Classification: L1, L4
Suggested Citation: Suggested Citation