Product-bundling and Incentives for Merger and Strategic Alliance
This paper analyzes firms' choice between a merger and a strategic alliance in bundling their product with other complementary products. We consider a framework in which firms can improve profits only from product-bundling. While mixed bundling is not profitable, pure bundling is because pure bundling reduces consumers' choices, and thus softens competition among firms. Firms benefit the most from this reduced competition if they form an alliance. Firms do not gain as much from a merger because, internalizing the complementarity between the two products, a merged firm is inclined to pursue aggressive pricing to gain market share. Yet, firms may be motivated to choose a merger over an alliance because of foreclosure possibility as foreclosure is not possible under strategic alliance. However, in response, unmerged rivals can use a strategic alliance to avert foreclosure. Hence, the possibility of counter-bundling via strategic alliance by rivals reduces the incentives for merger. In equilibrium, bundling is offered only through strategic alliances.
|Date of creation:||Jun 2009|
|Date of revision:|
|Contact details of provider:|| Web page: http://economics.emory.edu/home/journals/|
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Armstrong, Mark, 2006. "Price discrimination," MPRA Paper 4693, University Library of Munich, Germany.
- Peitz, Martin, 2008. "Bundling may blockade entry," International Journal of Industrial Organization, Elsevier, vol. 26(1), pages 41-58, January.
- Seidmann, Daniel J, 1991. "Bundling as a Facilitating Device: A Reinterpretation of Leverage Theory," Economica, London School of Economics and Political Science, vol. 58(232), pages 491-99, November.
- Joshua S. Gans & Stephen P. King, 2006. "PAYING FOR LOYALTY: PRODUCT BUNDLING IN OLIGOPOLY -super-* ," Journal of Industrial Economics, Wiley Blackwell, vol. 54(1), pages 43-62, 03.
- Choi, Jay Pil & Stefanadis, Christodoulos, 2001. "Tying, Investment, and the Dynamic Leverage Theory," RAND Journal of Economics, The RAND Corporation, vol. 32(1), pages 52-71, Spring.
- Carbajo, Jose & de Meza, David & Seidmann, Daniel J, 1990. "A Strategic Motivation for Commodity Bundling," Journal of Industrial Economics, Wiley Blackwell, vol. 38(3), pages 283-98, March.
- Adams, William James & Yellen, Janet L, 1976. "Commodity Bundling and the Burden of Monopoly," The Quarterly Journal of Economics, MIT Press, vol. 90(3), pages 475-98, August.
- McAfee, R Preston & McMillan, John & Whinston, Michael D, 1989. "Multiproduct Monopoly, Commodity Bundling, and Correlation of Values," The Quarterly Journal of Economics, MIT Press, vol. 104(2), pages 371-83, May.
- Denicolo, Vincenzo, 2000. "Compatibility and Bundling with Generalist and Specialist Firms," Journal of Industrial Economics, Wiley Blackwell, vol. 48(2), pages 177-88, June.
- DeGraba, Patrick, 1994. "No Lease is Short Enough to Solve the Time Inconsistency Problem," Journal of Industrial Economics, Wiley Blackwell, vol. 42(4), pages 361-74, December.
- Michael D. Whinston, 1989.
"Tying, Foreclosure, and Exclusion,"
NBER Working Papers
2995, National Bureau of Economic Research, Inc.
- 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.
- Barry Nalebuff, 2004. "Bundling as an Entry Barrier," The Quarterly Journal of Economics, MIT Press, vol. 119(1), pages 159-187, February.
- Vaubourg, Anne-Gael, 2006. "Differentiation and discrimination in a duopoly with two bundles," International Journal of Industrial Organization, Elsevier, vol. 24(4), pages 753-762, July.
- Chen, Yongmin, 1997. "Equilibrium Product Bundling," The Journal of Business, University of Chicago Press, vol. 70(1), pages 85-103, January.
- Jay Pil Choi, 2008. "MERGERS WITH BUNDLING IN COMPLEMENTARY MARKETS -super-* ," Journal of Industrial Economics, Wiley Blackwell, vol. 56(3), pages 553-577, 09.
When requesting a correction, please mention this item's handle: RePEc:emo:wp2003:0907. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sue Mialon)
If references are entirely missing, you can add them using this form.