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Innovation, Rent Extraction, and Integration in Systems Markets

Author

Listed:
  • Joseph Farrell

    (University of California, Berkeley)

  • Michael L. Katz

    (University of California, Berkeley)

Abstract

We consider innovation incentives in markets where final goods comprise two strictly complementary components, one of which is monopolized. We focus on the case in which the complementary component is competitively supplied, and in which innovation is important. We explore ways in which the monopoly may have incentives to confiscate efficiency rents in the competitive sector, thus weakening or destroying incentives for independent innovation. We discuss how these problems are affected if the monopolist integrates into the competitive sector.

Suggested Citation

  • Joseph Farrell & Michael L. Katz, 2001. "Innovation, Rent Extraction, and Integration in Systems Markets," Industrial Organization 0012001, University Library of Munich, Germany.
  • Handle: RePEc:wpa:wuwpio:0012001
    Note: 39 pages, Acrobat .pdf
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    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/io/papers/0012/0012001.pdf
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    References listed on IDEAS

    as
    1. Dennis W. Carlton & Michael Waldman, 2002. "The Strategic Use of Tying to Preserve and Create Market Power in Evolving Industries," RAND Journal of Economics, The RAND Corporation, vol. 33(2), pages 194-220, Summer.
    2. 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 105-123, March.
    3. Katz, Michael L., 1989. "Vertical contractual relations," Handbook of Industrial Organization,in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 11, pages 655-721 Elsevier.
    4. Jay Pil Choi, 1996. "Preemptive R&D, Rent Dissipation, and the "Leverage Theory"," The Quarterly Journal of Economics, Oxford University Press, vol. 111(4), pages 1153-1181.
    5. Whinston, Michael D, 1990. "Tying, Foreclosure, and Exclusion," American Economic Review, American Economic Association, vol. 80(4), pages 837-859, September.
    Full references (including those not matched with items on IDEAS)

    More about this item

    JEL classification:

    • L4 - Industrial Organization - - Antitrust Issues and Policies
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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