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A welfare evaluation of tying strategies

Listed author(s):
  • Gayer, Amit
  • Shy, Oz
Registered author(s):

We compare monopoly profit, consumer surplus, and total welfare associated with three commonly used tying strategies: no tying, pure tying, and mixed tying. Whereas the previous literature focused mainly on profit comparisons, this paper evaluates the relationship between component production costs and total welfare. We identify several market failures where the seller does not adopt the welfare-maximizing tying strategy. Finally, we explore how consumer exclusion rates (uncaptured market) are affected by tying strategy and some implications for unbundling regulation.

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File URL: http://www.sciencedirect.com/science/article/pii/S1090944316301624
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Article provided by Elsevier in its journal Research in Economics.

Volume (Year): 70 (2016)
Issue (Month): 4 ()
Pages: 623-637

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Handle: RePEc:eee:reecon:v:70:y:2016:i:4:p:623-637
DOI: 10.1016/j.rie.2016.08.003
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622941

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  17. Dennis W. Carlton & Michael Waldman, 2002. "The Strategic Use of Tying to Preserve and Create Market Power in Evolving Industries," RAND Journal of Economics, The RAND Corporation, vol. 33(2), pages 194-220, Summer.
  18. Matutes, Carmen & Regibeau, Pierre, 1992. "Compatibility and Bundling of Complementary Goods in a Duopoly," Journal of Industrial Economics, Wiley Blackwell, vol. 40(1), pages 37-54, March.
  19. R. Preston McAfee & John McMillan & Michael D. Whinston, 1989. "Multiproduct Monopoly, Commodity Bundling, and Correlation of Values," The Quarterly Journal of Economics, Oxford University Press, vol. 104(2), pages 371-383.
  20. Xianjun Geng & Maxwell B. Stinchcombe & Andrew B. Whinston, 2005. "Bundling Information Goods of Decreasing Value," Management Science, INFORMS, vol. 51(4), pages 662-667, April.
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