Equilibrium Foreclosure and Complementary Products
AbstractIn this paper we address the possibility of horizontal foreclosure in markets for complementary services (software) where the consumption value of durables (hardware) depends on the availability of software. Horizontal foreclosure occurs when a hardware firm merges with a software firm and the integrated firm ceases to supply compatible software for a rival technology. We find that horizontal foreclosure can be an equilibrium outcome where both the merger and compatibility decisions are part of a multistage game which permits the foreclosed firm to play a number of counter-strategies. Moreover, foreclosure may result in monopolization of the hardware market. We find that the foreclosure equilibrium is inefficient: total surplus would be higher without foreclosure.
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Bibliographic InfoPaper provided by EconWPA in its series Industrial Organization with number 9311001.
Length: 32 pages
Date of creation: 03 Nov 1993
Date of revision:
Note: 32 pages, LATEX file
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Other versions of this item:
- Church, J. & Gandal, N., 1993. "Equilibrium Foreclosure and Complementary Products," Papers 3-93, Tel Aviv - the Sackler Institute of Economic Studies.
- Church, J. & Gandal, N., 1993. "Equilibrium Foreclosure and Complementary Products," Papers 9303, Calgary - Department of Economics.
- L - Industrial Organization
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