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On Stability in Competition: Tying and Horizontal Product Differentiation

  • Alain Egli
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    We combine Hotelling's model of product differentiation with tie-in sales. Tie-in sales condition the sale of one good upon the purchase of another good. In equilibrium firms choose zero product differentiation. Due to the tying structure no firm can gain the whole market by a small price reduction. Then we address the following questions: Can a firm with monopoly power in one market leverage this power into another market where it faces competition. What is the effect from tying on the profits of the monopolist's rival. In our model this effect is ambiguous

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    Paper provided by Universitaet Bern, Departement Volkswirtschaft in its series Diskussionsschriften with number dp0501.

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    Date of creation: Jan 2005
    Date of revision:
    Handle: RePEc:ube:dpvwib:dp0501
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    1. Economides, Nicholas, 1986. "Minimal and maximal product differentiation in Hotelling's duopoly," Economics Letters, Elsevier, vol. 21(1), pages 67-71.
    2. Posada, Pedro & Odd Rune Straume, 2003. "Merger, partial collusion and relocation," Royal Economic Society Annual Conference 2003 167, Royal Economic Society.
    3. Hinloopen, Jeroen & van Marrewijk, Charles, 1999. "On the limits and possibilities of the principle of minimum differentiation1," International Journal of Industrial Organization, Elsevier, vol. 17(5), pages 735-750, July.
    4. 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.
    5. d'ASPREMONT, Claude & GABSZEWICZ, Jean J. & THISSE, Jacques-François, . "On Hotelling's "Stability in competition"," CORE Discussion Papers RP 385, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    6. Economides, Nicholas, 1984. "The principle of minimum differentiation revisited," European Economic Review, Elsevier, vol. 24(3), pages 345-368, April.
    7. 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.
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