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American Economic Journal: Microeconomics: Vol. 2 No. 3 (August 2010)

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Why Tie a Product Consumers Do Not Use?

Article Citation

Carlton, Dennis W., Joshua S. Gans, and Michael Waldman. 2010. "Why Tie a Product Consumers Do Not Use?" American Economic Journal: Microeconomics, 2(3): 85-105.

DOI: 10.1257/mic.2.3.85

Abstract

We provide an explanation for tying not based on any of the standard arguments: efficiency, price discrimination, or exclusion. In our analysis a monopolist ties a complementary good to its monopolized good, but consumers do not use the tied good. The tie is profitable because it shifts profits from a complementary good rival to the monopolist. We show such tying is socially inefficient, but arises only when the tie is socially efficient in the absence of the rival. We relate this form of tying to several examples, discuss how it can also arise under competition, and explore its antitrust implications. (JEL D42, K21, L12, L25, L40)

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Authors

Carlton, Dennis W. (U Chicago)
Gans, Joshua S. (U Melbourne)
Waldman, Michael (Cornell U)

JEL Classifications

D42: Market Structure and Pricing: Monopoly
K21: Antitrust Law
L12: Monopoly; Monopolization Strategies
L25: Firm Performance: Size, Diversification, and Scope
L40: Antitrust Issues and Policies: General

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