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Leveraging Monopoly Power by Degrading Interoperability: Theory and evidence from computer markets

Author

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  • Kühn, Kai-Uwe
  • Van Reenen, John
  • Genakos, Christos

Abstract

When will a monopolist have incentives to foreclose a complementary market by degrading compatibility/interoperability of his products with those of rivals? We develop a framework where leveraging extracts more rents from the monopoly market by 'restoring' second degree price discrimination. In a random coefficient model with complements we derive a policy test for when incentives to reduce rival quality will hold. Our application is to Microsoft?s strategic incentives to leverage market power from personal computer to server operating systems. We estimate a structural random coefficients demand system which allows for complements (PCs and servers). Our estimates suggest that there were incentives to reduce interoperability which were particularly strong at the turn of the 21st Century.

Suggested Citation

  • Kühn, Kai-Uwe & Van Reenen, John & Genakos, Christos, 2011. "Leveraging Monopoly Power by Degrading Interoperability: Theory and evidence from computer markets," CEPR Discussion Papers 8502, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:8502
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    Cited by:

    1. Laura Nurski, 2012. "Net Neutrality, Foreclosure and the Fast Lane: An empirical study of the UK," Working Papers 12-13, NET Institute.
    2. Sruthi Thatchenkery & Riitta Katila, 2023. "Innovation and profitability following antitrust intervention against a dominant platform: The wild, wild west?," Strategic Management Journal, Wiley Blackwell, vol. 44(4), pages 943-976, April.
    3. José Tudón, 2022. "Prioritization vs. congestion on platforms: evidence from Amazon's Twitch.tv," RAND Journal of Economics, RAND Corporation, vol. 53(2), pages 328-355, June.
    4. Kai-Uwe Kühn & Svend Albæk & Miguel Mano, 2011. "Economics at DG Competition, 2010–2011," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 39(4), pages 311-325, December.

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    More about this item

    Keywords

    Foreclosure; Anti-trust; Demand estimation; Interoperability;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L4 - Industrial Organization - - Antitrust Issues and Policies
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights

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