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Anticompetitive Bundling When Buyers Compete

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  • Alexandre de Cornière
  • Greg Taylor

Abstract

We study the profitability of bundling by an upstream firm that licenses technologies to downstream competitors and that faces competition for one of its technologies. In an otherwise standard "Chicago-style" model, the existence of downstream competition can make inefficient bundling profitable. Forcing downstream firms to use an inefficient technology reassures each one that it will face weak competition. This allows the upstream firm to extract more profit through its monopolized technology. A similar logic can make it profitable to degrade interoperability with rival technologies, even without foreclosing competition. Bundling is most profitable when downstream competition is intense and technologies complementary.

Suggested Citation

  • Alexandre de Cornière & Greg Taylor, 2024. "Anticompetitive Bundling When Buyers Compete," American Economic Journal: Microeconomics, American Economic Association, vol. 16(1), pages 293-328, February.
    • Handle: RePEc:aea:aejmic:v:16:y:2024:i:1:p:293-328
    DOI: 10.1257/mic.20230051
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D45 - Microeconomics - - Market Structure, Pricing, and Design - - - Rationing; Licensing
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures

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