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Leveraging Dominance with Credible Bundling

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  • Jeon, Doh-Shin
  • Hurkens, Sjaak
  • Menicucci, Domenico

Abstract

We contribute to the leverage theory of tying by studying bundling of a dominant firm instead of a monopolist. We show that, when one firm has symmetric dominance across all markets, bundling has a positive demand size effect on the dominant firm but affects both firms similarly through the demand elasticity effect. The demand size affect is hump-shaped in dominance level whereas the demand elasticity affect is increasing and negative (positive) for low (high) dominance levels. This makes bundling credible for sufficiently strong dominance. In the case of asymmetric dominance levels, we identify three different circumstances in which a firm can credibly leverage its dominance in some (tying) markets to foreclose a dominant rival in other (tied) markets. Our findings provide a justification for the use of contractual bundling for foreclosure.

Suggested Citation

  • Jeon, Doh-Shin & Hurkens, Sjaak & Menicucci, Domenico, 2016. "Leveraging Dominance with Credible Bundling," CEPR Discussion Papers 11304, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:11304
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    References listed on IDEAS

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    Cited by:

    1. Sang‐Hyun Kim & Jong‐Hee Hahn, 2022. "On the profitability of interfirm bundling in oligopolies," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 31(3), pages 657-673, August.
    2. Jeon, Doh-Shin & Menicucci, Domenico & Nasr, Nikrooz, 2016. "Compatibility Choices, Switching Costs and Data Portability: On the Role of the Non-Negative Pricing Constraint," TSE Working Papers 16-691, Toulouse School of Economics (TSE), revised Aug 2020.
    3. Choi, Jay Pil & Jeon, Doh-Shin, 2016. "A Leverage Theory of Tying in Two-Sided Markets," TSE Working Papers 16-689, Toulouse School of Economics (TSE), revised Oct 2019.

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    More about this item

    Keywords

    Bundling; Tying; Leverage; Dominance; Entry barrier;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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