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On Stability in Competition: Tying and Horizontal Product Differentiation

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  • Alain Egli

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    Abstract

    We combine Hotelling’s model of product differentiation with tie-in sales. A monopolist in one market competes with another firm in a second market. In equilibrium firms choose zero product differentiation. Due to the tying structure no firm can gain the whole market by a small price reduction. A differentiation effect due to tie-in sales leads to this equilibrium stability. Copyright Springer Science+Business Media, LLC 2007

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    File URL: http://hdl.handle.net/10.1007/s11151-007-9127-y
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    Bibliographic Info

    Article provided by Springer in its journal Review of Industrial Organization.

    Volume (Year): 30 (2007)
    Issue (Month): 1 (February)
    Pages: 29-38

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    Handle: RePEc:kap:revind:v:30:y:2007:i:1:p:29-38

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    Web page: http://www.springerlink.com/link.asp?id=100336

    Related research

    Keywords: Horizontal product differentiation; Hotelling; Tie-in sales; Equilibrium existence; D43; L10; L11; L13;

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    1. d'Aspremont, C & Gabszewicz, Jean Jaskold & Thisse, J-F, 1979. "On Hotelling's "Stability in Competition"," Econometrica, Econometric Society, vol. 47(5), pages 1145-50, September.
    2. Economides, Nicholas, 1984. "The principle of minimum differentiation revisited," European Economic Review, Elsevier, vol. 24(3), pages 345-368, April.
    3. Adams, William James & Yellen, Janet L, 1976. "Commodity Bundling and the Burden of Monopoly," The Quarterly Journal of Economics, MIT Press, vol. 90(3), pages 475-98, August.
    4. Hinloopen, Jeroen & van Marrewijk, Charles, 1999. "On the limits and possibilities of the principle of minimum differentiation1," International Journal of Industrial Organization, Elsevier, vol. 17(5), pages 735-750, July.
    5. Neven, D. & Thisse, J-F., 1989. "On Quality And Variety Competition," CORE Discussion Papers 1989020, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    6. Carbajo, Jose & de Meza, David & Seidmann, Daniel J, 1990. "A Strategic Motivation for Commodity Bundling," Journal of Industrial Economics, Wiley Blackwell, vol. 38(3), pages 283-98, March.
    7. Bockem, Sabine, 1994. "A Generalized Model of Horizontal Product Differentiation," Journal of Industrial Economics, Wiley Blackwell, vol. 42(3), pages 287-98, September.
    8. Stephen Martin, 1998. "Strategic and Welfare Implications of Bundling," CIE Discussion Papers 1998-14, University of Copenhagen. Department of Economics. Centre for Industrial Economics.
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