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Tying in evolving industries, when future entry cannot be deterred

Author

Listed:
  • Chiara Fumagalli
  • Massimo Motta

Abstract

We show that the incentive to engage in exclusionary tying (of two complementary products) may arise even when tying cannot be used as a defensive strategy to protect the incumbent's dominant position in the primary market. By engaging in tying, an incumbent firm sacrifices current profits but can exclude a more efficient rival from a complementary market by depriving it of the critical scale it needs to be successful. In turn, exclusion in the complementary market allows the incumbent to be in a favorable position when a more efficient rival will enter the primary market, and to appropriate some of the rival's efficiency rents. The paper also shows that tying is a more profitable exclusionary strategy than pure bundling, and that exclusion is the less likely the higher the proportion of consumers who multi-home. Keywords:Inefficient foreclosure, Tying, Scale economies, Network Externalities. JEL Codes: K21, L41

Suggested Citation

  • Chiara Fumagalli & Massimo Motta, 2019. "Tying in evolving industries, when future entry cannot be deterred," Working Papers 654, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    • Handle: RePEc:igi:igierp:654
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    Cited by:

    1. Motta, Massimo & Peitz, Martin, 2021. "Big tech mergers," Information Economics and Policy, Elsevier, vol. 54(C).
    2. Martin Peitz, 2024. "The Economic Theory of Two-Sided Platforms," CRC TR 224 Discussion Paper Series crctr224_2024_584, University of Bonn and University of Mannheim, Germany.
    3. Martin Peitz, 2025. "Governance and Regulation of Platforms," Springer Books, in: Claude Ménard & Mary M. Shirley (ed.), Handbook of New Institutional Economics, edition 0, chapter 23, pages 565-593, Springer.

    More about this item

    Keywords

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    JEL classification:

    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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