Leveraging Monopoly Power by Degrading Interoperability: Theory and evidence from computer markets
AbstractWhen 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 InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 8502.
Date of creation: Aug 2011
Date of revision:
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Other versions of this item:
- Christos Genakos & Kai Uwe Kühn & John Van Reenen, 2011. "Leveraging Monopoly Power by Degrading Interoperability: Theory and Evidence from Computer Markets," CEP Discussion Papers dp1060, Centre for Economic Performance, LSE.
- Christos Genakos & Kai-Uwe Kühn & John Van Reenen, 2011. "Leveraging Monopoly Power by Degrading Interoperability: Theory and Evidence from Computer Markets," NBER Working Papers 17172, National Bureau of Economic Research, Inc.
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
- L4 - Industrial Organization - - Antitrust Issues and Policies
- O3 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-08-09 (All new papers)
- NEP-COM-2011-08-09 (Industrial Competition)
- NEP-IND-2011-08-09 (Industrial Organization)
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- 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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