We examine a mechanism by which bundling may inefficiently deter entry into the market. The model considers an incumbent monopolist in two complementary components that faces a series of entry attempts by rivals. It is shown that the incumbent can practice bundling to buttress its monopoly position by keeping specialist innovators out of the market. Bundling prevents specialist rivals from coordinating in the dynamic entry process, reducing the probability of an eventual displacement of the incumbent. The specialization decisions of rivals are also distorted. Bundling may lead to lower customer and total economic welfare.
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Article provided by University of Chicago Press in its journal Journal of Business.
Volume (Year): 79 (2006) Issue (Month): 5 (September) Pages: 2575-2594 Download reference. The following formats are available: HTML
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