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Complementary Monopoly And Welfare: Is Splitting Up So Bad?

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  • JOLIAN MCHARDY

Abstract

We derive an original measure of dead-weight loss (DWL) in an m-sector complementary monopoly and show that with non-collusive pricing DWL may be seriously understated if demand complementarities are ignored, even when m is small. Since DWL generally increases with m and with less collusive pricing, separating monopoly into complementary monopoly (risking reduced price collusion) may be a bad static move. To illustrate, separating Microsoft into two non-collusive complementary monopolies may increase DWL from $4 billion to $7 billion (for 2002-3). However, we show that such a policy may be welfare improving with even relatively modest post-separation entry and Cournot quantity competition. Copyright � 2006 The Author; Journal compilation � Blackwell Publishing Ltd and The University of Manchester 2006.

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Bibliographic Info

Article provided by University of Manchester in its journal Manchester School.

Volume (Year): 74 (2006)
Issue (Month): 3 (06)
Pages: 334-349

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Handle: RePEc:bla:manchs:v:74:y:2006:i:3:p:334-349

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Cited by:
  1. Jolian McHardy & Michael Reynolds & Stephen Trotter, 2012. "The Stackelberg Model as a Partial Solution to the Problem of Pricing in a Network," Working Paper Series 19_12, The Rimini Centre for Economic Analysis.
  2. Jolian McHardy & Michael Reynolds & Stephen Trotter, 2012. "On the problem of network monopoly," Theory and Decision, Springer, vol. 73(2), pages 223-248, August.
  3. Jolian McHardy & Michael Reynolds & Stephen Trotter, 2007. "Network regulation using an agent," Working Papers 2007004, The University of Sheffield, Department of Economics, revised Feb 2007.
  4. M. Alvisi & E. Carbonara, 2010. "Imperfect Substitutes for Perfect Complements: Solving the Anticommons Problem," Working Papers 708, Dipartimento Scienze Economiche, Universita' di Bologna.
  5. Bataille, Marc & Steinmetz, Alexander, 2013. "Intermodal competition on some routes in transportation networks: The case of inter urban buses and railways," DICE Discussion Papers 84, Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).

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