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Complementary Monopoly And Welfare: Is Splitting Up So Bad?

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  • JOLIAN MCHARDY

Abstract

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.

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  • Jolian Mchardy, 2006. "Complementary Monopoly And Welfare: Is Splitting Up So Bad?," Manchester School, University of Manchester, vol. 74(3), pages 334-349, June.
    • Handle: RePEc:bla:manchs:v:74:y:2006:i:3:p:334-349
    DOI: 10.1111/j.1467-9957.2006.00496.x
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    Cited by:

    1. Jolian McHardy & Michael Reynolds & Stephen Trotter, 2012. "The Stackelberg Model as a Partial Solution to the Problem of Pricing in a Network," Working Paper series 19_12, Rimini Centre for Economic Analysis.
    2. M. Alvisi & E. Carbonara, 2010. "Imperfect Substitutes for Perfect Complements: Solving the Anticommons Problem," Working Papers 708, Dipartimento Scienze Economiche, Universita' di Bologna.
    3. Van Cayseele Patrick & Reynaerts Jo, 2011. "Complementary Platforms," Review of Network Economics, De Gruyter, vol. 10(1), pages 1-33, March.
    4. Bataille, Marc & Steinmetz, Alexander, 2013. "Intermodal competition on some routes in transportation networks: The case of inter urban buses and railways," DICE Discussion Papers 84, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    5. Jolian McHardy & Michael Reynolds & Stephen Trotter, 2012. "On the problem of network monopoly," Theory and Decision, Springer, vol. 73(2), pages 223-248, August.
    6. Jolian McHardy & Michael Reynolds & Stephen Trotter, 2007. "Network regulation using an agent," Working Papers 2007004, The University of Sheffield, Department of Economics, revised Feb 2007.
    7. McHardy, Jolian & Reynolds, Michael & Trotter, Stephen, 2013. "Network interconnectivity with competition and regulation," Transportation Research Part A: Policy and Practice, Elsevier, vol. 47(C), pages 97-110.
    8. Çakır, Metin & Nolan, James, 2015. "Revisiting Concentration in Food and Agricultural Supply Chains: The Welfare Implications of Market Power in a Complementary Input Sector," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 40(2), pages 1-17, May.
    9. Kopel, Michael & Löffler, Clemens & Pfeiffer, Thomas, 2017. "Complementary monopolies and multi-product firms," Economics Letters, Elsevier, vol. 157(C), pages 28-30.

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