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Tying, Investment, and the Dynamic Leverage Theory Author info | Abstract | Publisher info | Download info | Related research | Statistics Choi, Jay Pil
Stefanadis, Christodoulos
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The idea that an incumbent supplier may tie two complementary products to fend off potential entrants is popular among practitioners yet is not fully understood in formal economic theory. This article makes sense of the argument by formally deriving a dynamic version of the old leverage doctrine. We show that when an incumbent monopolist faces the threat of entry in all complementary components, tying may make the prospects of successful entry less certain, discouraging rivals from investing and innovating. Tie-in sales may reduce consumer and total economic welfare. Copyright 2001 by the RAND Corporation.
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Article provided by The RAND Corporation in its journal RAND Journal of Economics .
Volume (Year): 32 (2001)
Issue (Month): 1 (Spring)
Pages: 52-71
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Handle: RePEc:rje:randje:v:32:y:2001:i:1:p:52-71Contact details of provider: Web page: http://www.rje.org
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