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On the commoditization of complementary markets

Author

Listed:
  • Rajeev K Tyagi

    (University of California, Irvine)

Abstract

A widely held view in strategy suggests that a firm with monopoly power in one market should seek to "commoditize" its complementary market. We examine the conditions under which this principle holds in a model where the complementary market features two vertically differentiated firms, and higher product quality entails higher per-unit production costs. We show that whether the monopolist chooses to commoditize the complementary market depends on the degree of heterogeneity in consumers' marginal valuation of quality, and on whether commoditization reduces production costs that are related or unrelated to quality.

Suggested Citation

  • Rajeev K Tyagi, 2025. "On the commoditization of complementary markets," Economics Bulletin, AccessEcon, vol. 45(3), pages 1566-1572.
    • Handle: RePEc:ebl:ecbull:eb-25-00358
    as

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    References listed on IDEAS

    as
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    Keywords

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    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L4 - Industrial Organization - - Antitrust Issues and Policies

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