Tying in Evolving Industries, when Future Entry Cannot Be Deterred

36 Pages Posted: 1 Nov 2019

See all articles by Chiara Fumagalli

Chiara Fumagalli

Università Bocconi

Massimo Motta

Universitat Pompeu Fabra

Multiple version iconThere are 2 versions of this paper

Date Written: October 2019

Abstract

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

Fumagalli, Chiara and Motta, Massimo, Tying in Evolving Industries, when Future Entry Cannot Be Deterred (October 2019). BAFFI CAREFIN Centre Research Paper No. 2019-123. Available at SSRN: https://ssrn.com/abstract=3478495

Chiara Fumagalli (Contact Author)

Università Bocconi ( email )

Massimo Motta

Universitat Pompeu Fabra ( email )

Ramon Trias Fargas 25-27
Barcelona, 08005
Spain

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