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The strategic interplay between bundling and merging in complementary markets

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  • Andrea Mantovani

    ()
    (University of Bologna & IEB)

  • Jan Vandekerckhove

    ()
    (Maastricht University)

Abstract

In this paper, two pairs of complementors have to decide whether to merge and eventually bundle their products. Depending on the degree of competitive pressure in the market, either both pairs decide to merge (with or without bundling), or only one pair merges and bundles, while rivals remain independent. The latter case can very harmful for consumers as it brings surge in prices. We also consider the case in which one pair moves first. Interestingly, we find a parametric region where first movers merge but refrain from bundling, to not induce rivals to merge as well.

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Bibliographic Info

Paper provided by Institut d'Economia de Barcelona (IEB) in its series Working Papers with number 2012/10.

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Length: 30 pages
Date of creation: 2012
Date of revision:
Handle: RePEc:ieb:wpaper:2012/4/doc2012-10

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Keywords: Bundling; merger; strategic interaction; antitrust;

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  1. Dennis W. Carlton & Michael Waldman, 1998. "The Strategic Use Of Tying To Preserve And Create Market Power In Evolving Industries," University of Chicago - George G. Stigler Center for Study of Economy and State 145, Chicago - Center for Study of Economy and State.
  2. Choi, Jay Pil & Stefanadis, Christodoulos, 2001. "Tying, Investment, and the Dynamic Leverage Theory," RAND Journal of Economics, The RAND Corporation, vol. 32(1), pages 52-71, Spring.
  3. Whinston, Michael D, 1990. "Tying, Foreclosure, and Exclusion," American Economic Review, American Economic Association, vol. 80(4), pages 837-59, September.
  4. Peitz, Martin, 2008. "Bundling may blockade entry," International Journal of Industrial Organization, Elsevier, vol. 26(1), pages 41-58, January.
  5. Chen, Yongmin, 1997. "Equilibrium Product Bundling," The Journal of Business, University of Chicago Press, vol. 70(1), pages 85-103, January.
  6. Joshua S. Gans & Stephen P. King, 2006. "PAYING FOR LOYALTY: PRODUCT BUNDLING IN OLIGOPOLY -super-* ," Journal of Industrial Economics, Wiley Blackwell, vol. 54(1), pages 43-62, 03.
  7. Carbajo, Jose & de Meza, David & Seidmann, Daniel J, 1990. "A Strategic Motivation for Commodity Bundling," Journal of Industrial Economics, Wiley Blackwell, vol. 38(3), pages 283-98, March.
  8. Stephen Martin, 1998. "Strategic and Welfare Implications of Bundling," CIE Discussion Papers 1998-14, University of Copenhagen. Department of Economics. Centre for Industrial Economics.
  9. Cready, William M, 1991. "Premium Bundling," Economic Inquiry, Western Economic Association International, vol. 29(1), pages 173-79, January.
  10. Matutes, Carmen & Regibeau, Pierre, 1992. "Compatibility and Bundling of Complementary Goods in a Duopoly," Journal of Industrial Economics, Wiley Blackwell, vol. 40(1), pages 37-54, March.
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