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Complementary Monopoly And Welfare: Is Splitting Up So Bad?

  • JOLIAN MCHARDY

We derive an original measure of dead-weight loss (DWL) in an m-sector complementary monopoly and show that with non-collusive pricing DWL may be seriously understated if demand complementarities are ignored, even when m is small. Since DWL generally increases with m and with less collusive pricing, separating monopoly into complementary monopoly (risking reduced price collusion) may be a bad static move. To illustrate, separating Microsoft into two non-collusive complementary monopolies may increase DWL from $4 billion to $7 billion (for 2002-3). However, we show that such a policy may be welfare improving with even relatively modest post-separation entry and Cournot quantity competition. Copyright � 2006 The Author; Journal compilation � Blackwell Publishing Ltd and The University of Manchester 2006.

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Article provided by University of Manchester in its journal Manchester School.

Volume (Year): 74 (2006)
Issue (Month): 3 (06)
Pages: 334-349

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Handle: RePEc:bla:manchs:v:74:y:2006:i:3:p:334-349
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