Tying in Evolving Industries, when Future Entry Cannot Be Deterred
36 Pages Posted: 1 Nov 2019
Date Written: October 2019
We show that the incentive to engage in exclusionary tying (of two complementary products) may arise even when tying cannot be used as a defensive strategy to protect the incumbent's dominant position in the primary market. By engaging in tying, an incumbent fi rm sacrifices current pro ts but can exclude a more efficient rival from a complementary market by depriving it of the critical scale it needs to be successful. In turn, exclusion in the complementary market allows the incumbent to be in a favorable position when a more efficient rival will enter the primary market, and to appropriate some of the rival's efficiency rents. The paper also shows that tying is a more pro table exclusionary strategy than pure bundling, and that exclusion is the less likely the higher the proportion of consumers who multi-home.
Keywords: Inefficient foreclosure, Tying, Scale economies, Network Externalities
JEL Classification: K21, L41
Suggested Citation: Suggested Citation