Tying in evolving industries,when future entry cannot be deterred |
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| Affiliation: | 1. Department of Economics, Università Bocconi, Italy;2. CSEF, Italy;3. CEPR, UK;4. ICREA-Universitat Pompeu Fabra and Barcelona Graduate School of Economics, Spain;1. Charles River Associates, Inc., Washington DC 20004, United States;2. Department of Economics, Georgetown University, Washington DC 20057, United States;1. PUC-Chile;2. Tel-Aviv University;3. KU Leuven;1. Toulouse School of Economics, France;2. Hanken School of Economics and Helsinki Graduate School of Economics, Finland;1. Sloan School of Management, Massachusetts Institute of Technology USA;2. Department of Economics and Rotman School of Management University of Toronto Canada;1. Department of Economics, Columbia University, USA;2. Department of Economics, University College London, UK |
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| 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 firm sacrifices current profits 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 profitable exclusionary strategy than pure bundling, and that exclusion is the less likely the higher the proportion of consumers who multi-home. |
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