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Endogenous Mergers of Complements with Mixed Bundling

  • Flores-Fillol, Ricardo
  • Moner Colonques, Rafael

This paper studies endogenous mergers of complements with mixed bundling, by allowing both for joint and separate consumption. After merger, partner fi…rms decrease the price of the bundled system. Besides, when markets for individual components are suffi…ciently important, partner …firms raise prices of stand-alone products, exploiting their monopoly power in local markets and making substitute 'mix-and-match' composite products less attractive to consumers. Even though these effects favor the pro fitability of mergers, merging is not always an equilibrium outcome. The reason is that outsiders respond by cutting their prices to retain their market share, and mergers can be unprofitable when competition is intense. From a welfare analysis, we observe that the number of mergers observed in equilibrium may be either excessive (when markets for individual components are important) or suboptimal (when markets for individual components are less important). Keywords: complements; merger; mixed bundling; separate consumption JEL classi…fication: L13; L41; D43

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File URL: http://hdl.handle.net/2072/151551
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Paper provided by Universitat Rovira i Virgili, Department of Economics in its series Working Papers with number 2072/151551.

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Date of creation: 2010
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Handle: RePEc:urv:wpaper:2072/151551
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  12. Economides, Nicholas & Salop, Steven C, 1992. "Competition and Integration among Complements, and Network Market Structure," Journal of Industrial Economics, Wiley Blackwell, vol. 40(1), pages 105-23, March.
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  17. Michael D. Whinston, 1989. "Tying, Foreclosure, and Exclusion," NBER Working Papers 2995, National Bureau of Economic Research, Inc.
  18. Barry Nalebuff, 2004. "Bundling as an Entry Barrier," The Quarterly Journal of Economics, MIT Press, vol. 119(1), pages 159-187, February.
  19. Morton I. Kamien & Israel Zang, 1988. "The Limits of Monopolization Through Acquisition," Discussion Papers 802, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  20. Brueckner, Jan K. & Spiller, Pablo T., 1991. "Competition and mergers in airline networks," International Journal of Industrial Organization, Elsevier, vol. 9(3), pages 323-342, September.
  21. Anderson, Simon P. & Loertscher, Simon & Schneider, Yves, 2010. "The ABC of complementary products mergers," Economics Letters, Elsevier, vol. 106(3), pages 212-215, March.
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