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Exclusionary Bundling and the Effects of a Competitive Fringe

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Listed:
  • Anil Caliskan
  • David Porter
  • Stephen Rassenti
  • Vernon L. Smith
  • Bart J. Wilson

Abstract

The traditional analysis of exclusionary bundling examines the impact of a monopolist bundling product A with another product B, which is competitively provided. Using experimental posted-offer markets, we investigate the exclusionary and welfare implications of having a fringe competitor in the A market. We find that the fringe seller increases the consumer surplus while decreasing the seller surplus and that the fringe seller does not affect the consumer surplus extracted from the bundle despite a decrease in the bundle transaction price. The consumer surplus gains generated by the fringe seller erode if the dominant seller has a lower average cost.

Suggested Citation

  • Anil Caliskan & David Porter & Stephen Rassenti & Vernon L. Smith & Bart J. Wilson, 2007. "Exclusionary Bundling and the Effects of a Competitive Fringe," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 163(1), pages 109-132, March.
    • Handle: RePEc:mhr:jinste:urn:sici:0932-4569(200703)163:1_109:ebateo_2.0.tx_2-r
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    References listed on IDEAS

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    1. Douglas D. Davis & Oleg Korenok, 2009. "Posted Offer Markets In Near‐Continuous Time: An Experimental Investigation," Economic Inquiry, Western Economic Association International, vol. 47(3), pages 449-466, July.
    2. Durham, Yvonne & McCabe, Kevin & Olson, Mark A. & Rassenti, Stephen & Smith, Vernon, 2004. "Oligopoly competition in fixed cost environments," International Journal of Industrial Organization, Elsevier, vol. 22(2), pages 147-162, February.
    3. Barry Nalebuff, 2000. "Competing Against Bundles," Yale School of Management Working Papers ysm157, Yale School of Management.
    4. 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.
    5. Cary A. Deck & Bart J. Wilson, 2006. "Tracking Customer Search to Price Discriminate," Economic Inquiry, Western Economic Association International, vol. 44(2), pages 280-295, April.
    6. Jon Ketcham & Vernon L. Smith & Arlington W. Williams, 1984. "A Comparison of Posted-Offer and Double-Auction Pricing Institutions," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 51(4), pages 595-614.
    7. William James Adams & Janet L. Yellen, 1976. "Commodity Bundling and the Burden of Monopoly," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 90(3), pages 475-498.
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    Citations

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    Cited by:

    1. Hinloopen, Jeroen & Müller, Wieland & Normann, Hans-Theo, 2014. "Output commitment through product bundling: Experimental evidence," European Economic Review, Elsevier, vol. 65(C), pages 164-180.
    2. Claudia M. Landeo, 2018. "Exclusionary vertical restraints and antitrust: experimental law and economics contributions," Chapters, in: Joshua C. Teitelbaum & Kathryn Zeiler (ed.), Research Handbook on Behavioral Law and Economics, chapter 3, pages 75-100, Edward Elgar Publishing.
    3. Christoph Engel & Urs Schweizer, 2007. "Editorial Preface," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 163(1), pages 1-4, March.
    4. Paul Heidhues, 2007. "Exclusionary Bundling and the Effects of a Competitive Fringe. Comment," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 163(1), pages 138-142, March.
    5. Smith, Angela M., 2011. "An experimental study of exclusive contracts," International Journal of Industrial Organization, Elsevier, vol. 29(1), pages 4-13, January.
    6. John Aloysius & Cary Deck & Amy Farmer, 2012. "A Comparison of Bundling and Sequential Pricing in Competitive Markets: Experimental Evidence," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 19(1), pages 25-51, February.
    7. Hinloopen, Jeroen & Müller, Wieland & Normann, Hans-Theo, 2014. "Output commitment through product bundling: Experimental evidence," European Economic Review, Elsevier, vol. 65(C), pages 164-180.

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    More about this item

    JEL classification:

    • C99 - Mathematical and Quantitative Methods - - Design of Experiments - - - Other
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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