2005-02-06 papers

on Industrial Organization

Issue of 2005‒02‒06
one paper chosen by

On Stability in Competition: Tying and Horizontal Product Differentiation By Alain Egli

On Stability in Competition: Tying and Horizontal Product Differentiation

By:	Alain Egli
Abstract:	We combine Hotelling’s model of product differentiation with tie-in sales. Tie-in sales condition the sale of one good upon the purchase of another good. In equilibrium firms choose zero product differentiation. Due to the tying structure no firm can gain the whole market by a small price reduction. Then we address the following questions: Can a firm with monopoly power in one market leverage this power into another market where it faces competition. What is the effect from tying on the profits of the monopolist’s rival. In our model this effect is ambiguous
Keywords:	Horizontal product differentiation; tie-in sales; leverage theory of tying; foreclosure
JEL:	D43 L11 L12 L13
Date:	2005–01
URL:	http://d.repec.org/n?u=RePEc:ube:dpvwib:dp0501&r=ind

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