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Dominance and Competitive Bundling

Author

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  • Sjaak Hurkens
  • Doh-Shin Jeon
  • Domenico Menicucci

Abstract

We study how bundling affects competition between two asymmetric multi-product firms. One firm dominates the other in that it produces better products more efficiently. For low (high) levels of dominance, bundling intensifies (relaxes) price competition and lowers (raises) both firms' profits. For intermediate dominance levels, bundling increases the dominant firm's market share substantially, thereby raising its profit while reducing its rival's profit. Hence, the threat to bundle is then a credible foreclosure strategy. We also identify circumstances in which a firm that dominates only in some markets can profitably leverage its dominance to other markets by tying all its products.

Suggested Citation

  • Sjaak Hurkens & Doh-Shin Jeon & Domenico Menicucci, 2019. "Dominance and Competitive Bundling," American Economic Journal: Microeconomics, American Economic Association, vol. 11(3), pages 1-33, August.
  • Handle: RePEc:aea:aejmic:v:11:y:2019:i:3:p:1-33
    Note: DOI: 10.1257/mic.20170131
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    References listed on IDEAS

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    Cited by:

    1. Joao Macieira & Pedro Pereira & Joao Vareda, 2013. "Bundling Incentives in Markets with Product Complementarities: The Case of Triple-Play," Working Papers 13-15, NET Institute.
    2. Innocenti, Federico & Menicucci, Domenico, 2021. "Partial compatibility in oligopoly," Journal of Economic Behavior & Organization, Elsevier, vol. 188(C), pages 351-378.
    3. Zhou, Jidong, 2019. "Mixed Bundling in Oligopoly Markets," MPRA Paper 97432, University Library of Munich, Germany.
    4. Gregory S. Crawford, 2015. "The economics of television and online video markets," ECON - Working Papers 197, Department of Economics - University of Zurich.
    5. Jidong Zhou, 2017. "Competitive Bundling," Econometrica, Econometric Society, vol. 85, pages 145-172, January.
    6. Belleflamme,Paul & Peitz,Martin, 2015. "Industrial Organization," Cambridge Books, Cambridge University Press, number 9781107069978, April.
    7. Etro, Federico, 2019. "Mergers of complements and entry in innovative industries," International Journal of Industrial Organization, Elsevier, vol. 65(C), pages 302-326.
    8. Doh-Shin Jeon & Domenico Menicucci & Nikrooz Nasr, 2015. "Dynamics of Compatibility under Switching Costs," Working Papers 15-17, NET Institute, revised Oct 2015.
    9. Crawford, Gregory S., 2015. "The Economics of Television and Online Video Markets," CEPR Discussion Papers 10676, C.E.P.R. Discussion Papers.
    10. Kuroda, Toshifumi & Ida, Takanori & Koguchi, Teppei, 2015. "The impact of asymmetric regulation on product bundling: The case of fixed broadband and mobile communications in Japan," 2015 Regional ITS Conference, Los Angeles 2015 146318, International Telecommunications Society (ITS).
    11. Andrea Greppi & Domenico Menicucci, 2021. "On Bundling and Entry Deterrence," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 58(4), pages 561-581, June.
    12. Zhou, Jidong, 2021. "Mixed bundling in oligopoly markets," Journal of Economic Theory, Elsevier, vol. 194(C).

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    More about this item

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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