On Stability in Competition: Tying and Horizontal Product Differentiation |
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| Authors: | Alain Egli |
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| Institution: | (1) University of Bern, Volkswirtschaftliches Institut, Abteilung für Wirtschaftstheorie, Schanzeneckstrasse 1, Postfach 8573, CH-3001 Bern, Switzerland |
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| Abstract: | We combine Hotelling’s model of product differentiation with tie-in sales. A monopolist in one market competes with another
firm in a second market. In equilibrium firms choose zero product differentiation. Due to the tying structure no firm can
gain the whole market by a small price reduction. A differentiation effect due to tie-in sales leads to this equilibrium stability.
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| Keywords: | Horizontal product differentiation Hotelling Tie-in sales Equilibrium existence |
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