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Product Improvement And Technological Tying In A Winner‐Take‐All Market

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  • RICHARD J. GILBERT
  • MICHAEL H. RIORDAN

Abstract

In a winner‐take‐all duopoly for systems in which firms invest to improve their products, a vertically integrated monopoly supplier of an essential system component may have an incentive to advantage itself by technological tying. If the vertically integrated firm is prevented from technologically tying, there is an equilibrium in which the more efficient firm invests and serves the entire market. However, another equilibrium may exist in which the less efficient firm wins the market. Technological tying enables a vertically integrated firm to foreclose its rival. The welfare implications of technological tying are ambiguous and depend on equilibrium selection.

Suggested Citation

  • Richard J. Gilbert & Michael H. Riordan, 2007. "Product Improvement And Technological Tying In A Winner‐Take‐All Market," Journal of Industrial Economics, Wiley Blackwell, vol. 55(1), pages 113-139, March.
    • Handle: RePEc:bla:jindec:v:55:y:2007:i:1:p:113-139
    DOI: 10.1111/j.1467-6451.2007.00305.x
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    Cited by:

    1. Marie-Laure Allain & Claire Chambolle & Patrick Rey, 2016. "Vertical Integration as a Source of Hold-up," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 83(1), pages 1-25.
    2. Chen, Yongmin & Sappington, David E.M., 2009. "Designing input prices to motivate process innovation," International Journal of Industrial Organization, Elsevier, vol. 27(3), pages 390-402, May.
    3. Buechel, Berno & Klein, Jan, 2014. "Do Consumers' Preferences Really Matter? - A Note on Spatial Competition with Restricted Strategies," MPRA Paper 55288, University Library of Munich, Germany.
    4. Yongmin Chen & David E. M. Sappington, 2010. "Innovation In Vertically Related Markets," Journal of Industrial Economics, Wiley Blackwell, vol. 58(2), pages 373-401, June.

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