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Bundled Discounts, Leverage Theory, and Downstream Competition

Bundled Discounts, Leverage Theory, and Downstream Competition Under plausible circumstances, a monopolist in one market can use its control of prices in that market to force competing downstream buyers to sign tying contracts that will lever its monopoly into another market. Specifically, the monopolist of the tying good can place each downstream buyer in a prisoner's dilemma by offering them more favorable pricing on the tying good if they sign a requirements-tying contract covering the tied good. Since a buyer benefits on receiving more favorable pricing on the tying good and the competitors do not, and suffers if the competitors receive more favorable pricing on the tying good and the buyer does not, buyers will sign the tying contract even when they would earn higher profits if they all refused to sign. This enables a monopolist in one market to inefficiently exclude an entrant in another market. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Law and Economics Review Oxford University Press

Bundled Discounts, Leverage Theory, and Downstream Competition

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References (22)

Publisher
Oxford University Press
Copyright
Published by Oxford University Press 2007.
Subject
Articles
ISSN
1465-7252
eISSN
1465-7260
DOI
10.1093/aler/ahm009
Publisher site
See Article on Publisher Site

Abstract

Under plausible circumstances, a monopolist in one market can use its control of prices in that market to force competing downstream buyers to sign tying contracts that will lever its monopoly into another market. Specifically, the monopolist of the tying good can place each downstream buyer in a prisoner's dilemma by offering them more favorable pricing on the tying good if they sign a requirements-tying contract covering the tied good. Since a buyer benefits on receiving more favorable pricing on the tying good and the competitors do not, and suffers if the competitors receive more favorable pricing on the tying good and the buyer does not, buyers will sign the tying contract even when they would earn higher profits if they all refused to sign. This enables a monopolist in one market to inefficiently exclude an entrant in another market.

Journal

American Law and Economics ReviewOxford University Press

Published: Oct 12, 2007

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