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Complementary Monopoly And Welfare: Is Splitting Up So Bad?

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Author Info
JOLIAN MCHARDY

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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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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1467-9957.2006.00496.x
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Publisher 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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  1. Jolian McHardy & Michael Reynolds & Stephen Trotter, 2007. "Jolian McHardy, Michael Reynolds and Stephen Trotter," Working Papers 2007004, The University of Sheffield, Department of Economics, revised Feb 2007. [Downloadable!]
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This page was last updated on 2009-12-19.

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