This paper models how exclusionary bundling motivates mergers. Firms in two unrelated markets may want to merge only to bundle, even though bundling is possible without a merger. This is because merger is necessary in order to use bundling for an exclusionary purpose. Independently of a merger, firms can always improve their profits from pure bundling. In contrast, a merger is never profitable if not combined with bundling. Moreover, it is more profitable to bundle through strategic alliance than through merger in the short run. Thus, firms choose to merge only if the merger can lead to foreclosure. Although the merger results in losses to a rival in only one of the two markets, foreclosure occurs in both markets, since the other rival firm alone cannot compete against a bundle. In this framework, all mergers are ex ante anti-competitive. Blocking a merger is never welfare-reducing.
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Paper provided by Department of Economics, Emory University (Atlanta) in its series Emory Economics with number
0907.
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Nicholas Economides, 1993.
"Mixed Bundling in Duopoly,"
Working Papers
93-29, New York University, Leonard N. Stern School of Business, Department of Economics.
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