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Bundling, Entry Deterrence, and Specialist Innovators

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Author Info

  • Jay Pil Choi

    (Michigan State University)

  • Christodoulos Stefanadis

    (University of Arizona)

Abstract

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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Bibliographic Info

Article provided by University of Chicago Press in its journal Journal of Business.

Volume (Year): 79 (2006)
Issue (Month): 5 (September)
Pages: 2575-2594

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Handle: RePEc:ucp:jnlbus:v:79:y:2006:i:5:p:2575-2594

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Web page: http://www.journals.uchicago.edu/JB/

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Cited by:
  1. Akifumi Ishihara & Noriyuki Yanagawa, 2013. "Dark Sides of Patent Pools with Compulsory Independent Licensing," CARF F-Series CARF-F-318, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
  2. Sheikhzadeh, Mehdi & Elahi, Ehsan, 2013. "Product bundling: Impacts of product heterogeneity and risk considerations," International Journal of Production Economics, Elsevier, vol. 144(1), pages 209-222.

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