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System Components, Network Effects, and Bundling

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Author Info
Matthew Clements (University of British Columbia)
Abstract

I investigate the competition between suppliers of components of a system for which there are network effects among users. Bundling one of these components with an outside good reduces the cost to consumers of using the system. This cost reduction is not necessarily welfare-enhancing, and bundling can also reduce welfare by decreasing innovation incentives. The model is used to evaluate Microsoft's bundling of Windows with Internet Explorer and its effect on competition with Netscape.

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Publisher Info
Article provided by Berkeley Electronic Press in its journal Topics in Economic Analysis & Policy.

Volume (Year): 2 (2002)
Issue (Month): 1 ()
Pages: 1046-1046
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Handle: RePEc:bep:eaptop:v:2:y:2002:i:1:p:1046-1046

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Related research
Keywords: network effects bundling

Find related papers by JEL classification:
L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

References listed on IDEAS
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  1. Nicholas Economides, 1998. "Raising Rivals' Costs in Complementary Goods Markets: LECs Entering into Long Distance and Microsoft Bundling Internet Explorer," Working Papers 98-03, New York University, Leonard N. Stern School of Business, Department of Economics. [Downloadable!]
  2. Church, Jeffrey & Gandal, Neil, 1992. "Network Effects, Software Provision, and Standardization," Journal of Industrial Economics, Blackwell Publishing, vol. 40(1), pages 85-103, March. [Downloadable!] (restricted)
  3. Jong-Hee Hahn, 2000. "Functional Quality Degradation of Software with Network Externalities," Keele Department of Economics Discussion Papers (1995-2001) 2000/12, Department of Economics, Keele University, revised Jan 2001. [Downloadable!]
  4. Joseph Farrell and Carl Shapiro., 1988. "Dynamic Competition with Switching Costs," Economics Working Papers 8865, University of California at Berkeley.
    Other versions:
  5. Choi, Jay Pil & Stefanadis, Christodoulos, 2001. "Tying, Investment, and the Dynamic Leverage Theory," RAND Journal of Economics, The RAND Corporation, vol. 32(1), pages 52-71, Spring.
  6. Schwartz, Marius, 1989. "Investments in Oligopoly: Welfare Effects and Tests for Predation," Oxford Economic Papers, Oxford University Press, vol. 41(4), pages 698-719, October. [Downloadable!] (restricted)
  7. Dennis W. Carlton & Michael Waldman, 2002. "The Strategic Use of Tying to Preserve and Create Market Power in Evolving Industries," RAND Journal of Economics, The RAND Corporation, vol. 33(2), pages 194-220, Summer.
    Other versions:
  8. McAfee, R Preston & McMillan, John & Whinston, Michael D, 1989. "Multiproduct Monopoly, Commodity Bundling, and Correlation of Values," The Quarterly Journal of Economics, MIT Press, vol. 104(2), pages 371-83, May. [Downloadable!] (restricted)
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This page was last updated on 2008-11-15.

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