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Innovation, Rent Extraction, and Integration in Systems Markets

  • Farrell, Joseph
  • Katz, Michael L

We consider innovation incentives in markets where final goods are systems comprising two strictly complementary components, one of which is monopolized. We focus on the case in which the complementary component is competitively supplied and innovation is important. We explore ways in which the monopoly may have incentives to extract efficiency rents in the competitive sector, thus weakening or destroying incentives for independent innovation. We discuss how these problems are affected if the monopolist integrates into supply of the complement. Copyright 2000 by Blackwell Publishing Ltd

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Article provided by Wiley Blackwell in its journal Journal of Industrial Economics.

Volume (Year): 48 (2000)
Issue (Month): 4 (December)
Pages: 413-32

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Handle: RePEc:bla:jindec:v:48:y:2000:i:4:p:413-32
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  1. Katz, Michael L., 1989. "Vertical contractual relations," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 11, pages 655-721 Elsevier.
  2. 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.
  3. Whinston, Michael D, 1990. "Tying, Foreclosure, and Exclusion," American Economic Review, American Economic Association, vol. 80(4), pages 837-59, September.
  4. repec:tpr:qjecon:v:111:y:1996:i:4:p:1153-81 is not listed on IDEAS
  5. Economides, Nicholas & Salop, Steven C, 1992. "Competition and Integration among Complements, and Network Market Structure," Journal of Industrial Economics, Wiley Blackwell, vol. 40(1), pages 105-23, March.
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