Template-type: ReDIF-Paper 1.0
Author-Name: Chiara Fumagalli
Author-Name: Massimo Motta
Title: Tying in evolving industries, when future entry cannot be deterred
Abstract: We show that the incentive to engage in exclusionary tying (of two complementary products) may arise even when tying cannot be used as a defensive strategy to protect the incumbent's dominant position in the primary market. By engaging in tying, an incumbent  firm sacrifices current profits but can exclude a more efficient rival from a complementary market by depriving it of the critical scale it needs to be successful. In turn, exclusion in the complementary market allows the incumbent to be in a favorable position when a more efficient rival will enter the primary market, and to appropriate some of the rival's efficiency rents. The paper also shows that tying is a more profitable exclusionary strategy than pure bundling, and that exclusion is the less likely the higher the proportion of consumers who multi-home.
Classification-JEL: K21, L41
Keywords: Inefficient foreclosure, Tying, Scale economies, Network Externalities
Length: 36
Number: 19123
Creation-Date: 2019
File-URL: https://repec.unibocconi.it/baffic/baf/papers/cbafwp19123.pdf
File-Format: application/pdf
File-Size: 501
Handle: RePEc:baf:cbafwp:cbafwp19123