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Leveraging Monopoly Power by Degrading Interoperability: Theory and Evidence from Computer Markets

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  • Christos Genakos
  • Kai Uwe Kühn
  • John Van Reenen

Abstract

When will a monopolist have incentives to foreclose a complementary market by degrading compatibility/interoperability of his products with those of rivals? We develop a framework where leveraging extracts more rents from the monopoly market by "restoring" second degree price discrimination. In a random coefficient model with complements we derive a policy test for when incentives to reduce rival quality will hold. Our application is to Microsoft's strategic incentives to leverage market power from personal computer to server operating systems. We estimate a structural random coefficients demand system which allows for complements (PCs and servers). Our estimates suggest that there were incentives to reduce interoperability which were particularly strong at the turn of the 21st Century.

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Bibliographic Info

Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp1060.

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Date of creation: Jul 2011
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Handle: RePEc:cep:cepdps:dp1060

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Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP

Related research

Keywords: Foreclosure; anti-trust; demand estimation; interoperability;

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Cited by:
  1. Kai-Uwe Kühn & Svend Albæk & Miguel Mano, 2011. "Economics at DG Competition, 2010–2011," Review of Industrial Organization, Springer, vol. 39(4), pages 311-325, December.

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