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The Strategic Use of Tying to Preserve and Create Market Power in Evolving Industries

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  • Dennis W. Carlton
  • Michael Waldman

Abstract

This paper investigates how the tying of complementary products can be used to preserve and extend monopoly positions. We first show how a firm that is a monopolist of a product in the current period can use tying to preserve its monopoly position in future periods. We then show using related arguments how a monopolist in one market can employ tying to extend its monopoly position into a newly emerging market. The analysis focuses on the importance of entry costs and network externalities. The paper includes a discussion of antitrust implications.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6831.

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Date of creation: Dec 1998
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Publication status: published as Carlton, Dennis W. and Michael Waldman. "The Strategic Use Of Tying To Preserve And Create Market Power In Evolving Industries," Rand Journal of Economics, 2002, v33(2,Summer), 194-220.
Handle: RePEc:nbr:nberwo:6831

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  1. Ordover, Janusz A & Saloner, Garth & Salop, Steven C, 1990. "Equilibrium Vertical Foreclosure," American Economic Review, American Economic Association, American Economic Association, vol. 80(1), pages 127-42, March.
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  3. Matutes, Carmen & Regibeau, Pierre, 1992. "Compatibility and Bundling of Complementary Goods in a Duopoly," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 40(1), pages 37-54, March.
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  12. Dixit, Avinash, 1979. "The Role of Investment in Entry-Deterrence," The Warwick Economics Research Paper Series (TWERPS) 140, University of Warwick, Department of Economics.
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  15. Ordover, Janusz A. & Saloner, Garth, 1989. "Predation, monopolization, and antitrust," Handbook of Industrial Organization, Elsevier, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 9, pages 537-596 Elsevier.
  16. Charles I. Jones & John C. Williams, 1997. "Measuring the social return to R&D," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 1997-12, Board of Governors of the Federal Reserve System (U.S.).
  17. Paul Milgrom & John Roberts, 1998. "Limit Pricing and Entry Under Incomplete Information: An Equilibrium Analysis," Levine's Working Paper Archive 245, David K. Levine.
  18. Friedman, James W, 1971. "A Non-cooperative Equilibrium for Supergames," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 38(113), pages 1-12, January.
  19. Waldman, Michael, 1993. "A New Perspective on Planned Obsolescence," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 108(1), pages 273-83, February.
  20. Choi, Jay Pil, 1994. "Network Externality, Compatibility Choice, and Planned Obsolescence," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 42(2), pages 167-82, June.
  21. Michael L. Katz & Carl Shapiro, 1994. "Systems Competition and Network Effects," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 8(2), pages 93-115, Spring.
  22. Carmen Matutes & Pierre Regibeau, 1988. ""Mix and Match": Product Compatibility without Network Externalities," RAND Journal of Economics, The RAND Corporation, vol. 19(2), pages 221-234, Summer.
  23. Choi, Jay Pil, 1996. "Preemptive R&D, Rent Dissipation, and the "Leverage Theory."," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 111(4), pages 1153-81, November.
  24. Adams, William James & Yellen, Janet L, 1976. "Commodity Bundling and the Burden of Monopoly," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 90(3), pages 475-98, August.
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  26. Salinger, Michael A, 1988. "Vertical Mergers and Market Foreclosure," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 103(2), pages 345-56, May.
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