Article

Dominance and Competitive Bundling

Sjaak Hurkens, Doh-Shin Jeon, and Domenico Menicucci

Abstract

We study how bundling affects competition between two asymmetric multi-product firms. One firm dominates the other in that it produces better products more efficiently. For low (high) levels of dominance, bundling intensifies (relaxes) price competition and lowers (raises) both firms’ profits. For intermediate dominance levels, bundling increases the dominant firm’s market share substantially, thereby raising its profit while reducing its rival’s profit. Hence, the threat to bundle is then a credible foreclosure strategy. We also identify circumstances in which a firm that dominates only in some markets can profitably leverage its dominance to other markets by tying all its products.

Keywords

Bundling; Tying; Leverage; Dominance; Entry Barrier;

JEL codes

  • D43: Oligopoly and Other Forms of Market Imperfection
  • L13: Oligopoly and Other Imperfect Markets
  • L41: Monopolization • Horizontal Anticompetitive Practices

Replaces

Sjaak Hurkens, Doh-Shin Jeon, and Domenico Menicucci, Dominance and Competitive Bundling, TSE Working Paper, n. 13-423, August 13, 2013, revised May 2018.

Reference

Sjaak Hurkens, Doh-Shin Jeon, and Domenico Menicucci, Dominance and Competitive Bundling, American Economic Journal: Microeconomics, 2018, forthcoming.

Published in

American Economic Journal: Microeconomics, 2018, forthcoming