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On Stability in Competition: Tying and Horizontal Product Differentiation

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  • Alain Egli

Abstract

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

Suggested Citation

  • Alain Egli, 2005. "On Stability in Competition: Tying and Horizontal Product Differentiation," Diskussionsschriften dp0501, Universitaet Bern, Departement Volkswirtschaft.
    • Handle: RePEc:ube:dpvwib:dp0501
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    1. Pedro Posada & Odd Rune Straume, 2004. "Merger, Partial Collusion and Relocation," Journal of Economics, Springer, vol. 83(3), pages 243-265, December.
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    7. 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.
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    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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