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Dominance and Competitive Bundling

  • Hurkens, Sjaak
  • Jeon, Doh-Shin
  • Menicucci, Domenico

We study bundling by a dominant multi-product firm facing competition from a rival multi-product firm. Compared to competition under independent pricing, competition under pure bundling reduces (increases) each firm's profit for low (high) levels of dominance, while for intermediate levels of dominance, it increases the dominant firm's profit but reduces the rival's profit. The latter result provides a justification for the use of contractual bundling to build entry barrier. When we allow for mixed bundling, we find a threshold level of dominance above which the unique outcome is the one under pure bundling.

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Paper provided by Toulouse School of Economics (TSE) in its series TSE Working Papers with number 13-423.

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Date of creation: 13 Aug 2013
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Handle: RePEc:tse:wpaper:27441
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  10. Dennis W. Carlton & Joshua S. Gans & Michael Waldman, 2010. "Why Tie a Product Consumers Do Not Use?," American Economic Journal: Microeconomics, American Economic Association, vol. 2(3), pages 85-105, August.
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  12. Jong-Hee Hahn & Sang-Hyun Kim, 2012. "Mix-and-Match Compatibility in Asymmetric System Markets," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 168(2), pages 311-338, June.
  13. Kai Uwe Kühn & John Van Reenen, 2008. "Interoperability and Market Foreclosure In the European Microsoft Case," CEP Special Papers 20, Centre for Economic Performance, LSE.
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