Monday, June 15, 2009
Posted by D. Daniel Sokol
ABSTRACT: 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.