Mergers with Bundling in Complementary Markets

This paper develops a simple model to analyze the effects of mergers in complementary system markets when the merged firm is able to engage in bundling. In particular, I analyze the impact of (mixed) bundling on pricing decisions for existing generations of products and derive welfare implications of mergers. The basic model is then extended to analyze industry dynamics where the implications of mergers for innovation incentives and technical tying/compatibility decisions are explored. I also consider the possibility of counter-merger and derive implications of the policy prescription that prohibits bundling as a condition for merger.

[1]  Jay Pil Choi,et al.  Preemptive R&D, Rent Dissipation, and the “Leverage Theory” , 1996 .

[2]  Nicholas Economides,et al.  Mixed Bundling in Duopoly , 1993 .

[3]  Jacques Crémer,et al.  Arm's Length Relationships , 1995 .

[4]  Michael A. Salinger.  Vertical Mergers in Multi-product Industries and Edgeworth's Paradox of Taxation , 1991 .

[5]  Richard Schmalensee,et al.  Handbook of Industrial Organization , 1989 .

[6]  N. Economides,et al.  COMPETITION AND INTEGRATION AMONG COMPLEMENTS, AND NETWORK MARKET STRUCTURE* , 1992 .

[7]  David de Meza,et al.  A strategic motivation for commodity bundling , 1990 .

[8]  B. Nalebuff.  Bundling as an Entry Barrier , 2004 .

[9]  M. Whinston.  Tying, Foreclosure, and Exclusion , 1989 .

[10]  J. Choi.  The economics and politics of international merger enforcement: A case study of the GE/honeywell merger , 2007 .

[11]  J. Choi,et al.  Tying, Investment, and the Dynamic Leverage Theory , 2000 .

[12]  Oliver E. Williamson,et al.  Chapter 3 Transaction cost economics , 1989 .

[13]  Janet L. Yellen,et al.  Commodity Bundling and the Burden of Monopoly , 1976 .

[14]  Joshua S. Gans,et al.  Paying for Loyalty: Product Bundling in Oligopoly , 2004 .

[15]  B. Nalebuff.  Bundling and the Ge-Honeywell Merger , 2002 .

[16]  Jeffrey Church.  The Impact of Vertical and Conglomerate Mergers on Competition , 2004 .

[17]  M. Whinston,et al.  Multiproduct Monopoly, Commodity Bundling, and Correlation of Values , 1989 .

[18]  J. Choi.  Tying and Innovation: A Dynamic Analysis of Tying Arrangements , 1998 .

[19]  O. Hart,et al.  Property Rights and the Nature of the Firm , 1988, Journal of Political Economy.

[20]  Katrin Ostertag.  Transaction cost economics , 2003 .

[21]  A. Cournot.  Researches into the Mathematical Principles of the Theory of Wealth , 1898, Forerunners of Realizable Values Accounting in Financial Reporting.

[22]  A. Mantovani.  The Strategic Effect of Bundling: A New Perspective , 2010 .