Vertical integration, bundled discounts and welfare
AbstractThis paper studies firms' incentives for vertical integration and bundled discounts of complementary components. We assume that firms first choose ownership structures and pricing schemes, and then compete on price. We find that vertical integration and mixed bundling is a dominant strategy for all firms, while, except for systems of components that are highly differentiated, total surplus is maximized under independent ownership with bundled discounts. Thus, our model suggests that vertical separation is beneficial for both firms and consumers in such a situation of competitive bundling. Our results have important policy implications for broadband markets.
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Bibliographic InfoArticle provided by Elsevier in its journal Information Economics and Policy.
Volume (Year): 21 (2009)
Issue (Month): 1 (February)
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Web page: http://www.elsevier.com/locate/inca/505549
Vertical integration Mixed bundling Bundled discounts Broadband market Regulation;
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