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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. Copyright © 2006 The Author; Journal compilation © Blackwell Publishing Ltd and The University of Manchester 2006.

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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
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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. 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.
    3. 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), May.
    4. 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.
    5. Van Cayseele Patrick & Reynaerts Jo, 2011. "Complementary Platforms," Review of Network Economics, De Gruyter, vol. 10(1), pages 1-33, March.
    6. Jolian McHardy & Michael Reynolds & Stephen Trotter, 2012. "On the problem of network monopoly," Theory and Decision, Springer, vol. 73(2), pages 223-248, August.
    7. M. Alvisi & E. Carbonara, 2010. "Imperfect Substitutes for Perfect Complements: Solving the Anticommons Problem," Working Papers 708, Dipartimento Scienze Economiche, Universita' di Bologna.
    8. 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, University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    9. repec:eee:ecolet:v:157:y:2017:i:c:p:28-30 is not listed on IDEAS

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