Abstract

This paper investigates how the tying of complementary products can be used to both preserve and create monopoly positions, where our focus is on the use of tying to deter the entry of efficient producers. We first show how a firm that is a monopolist of a product in the current period can use tying to preserve its monopoly position in the future. We then show using related arguments how a monopolist in one market can employ tying to extend its monopoly position into a newly emerging market. The analysis focuses on the importance of entry costs and network externalities. The paper includes a Tying is a common practice in many markets, i.e., the seller of product A refuses to sell A to a consumer unless the consumer also purchases B (in this scenario product A is referred to as the tying product and B as the tied product). Examples are numerous such as IBM’s famous practice of requiring purchasers of IBM’s tabulating machines to also purchase tabulating cards from IBM, and Microsoft’s

Citations