Anticompetitive Bundling When Buyers Compete
American Economic Journal: Microeconomics
vol. 16,
no. 1, February 2024
(pp. 293-328)
Abstract
We study the profitability of bundling by an upstream firm that licenses technologies to downstream competitors and that faces competition for one of its technologies. In an otherwise standard "Chicago-style" model, the existence of downstream competition can make inefficient bundling profitable. Forcing downstream firms to use an inefficient technology reassures each one that it will face weak competition. This allows the upstream firm to extract more profit through its monopolized technology. A similar logic can make it profitable to degrade interoperability with rival technologies, even without foreclosing competition. Bundling is most profitable when downstream competition is intense and technologies complementary.Citation
de Cornière, Alexandre, and Greg Taylor. 2024. "Anticompetitive Bundling When Buyers Compete." American Economic Journal: Microeconomics, 16 (1): 293-328. DOI: 10.1257/mic.20230051Additional Materials
JEL Classification
- D21 Firm Behavior: Theory
- D24 Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
- D43 Market Structure, Pricing, and Design: Oligopoly and Other Forms of Market Imperfection
- D45 Rationing; Licensing
- G34 Mergers; Acquisitions; Restructuring; Voting; Proxy Contests; Corporate Governance
- L24 Contracting Out; Joint Ventures; Technology Licensing
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