Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

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Thursday, July 15, 2010

Bundling and Compatibility: Selling the Whole Package May Be Pro-Competitive

Posted by D. Daniel Sokol

Matteo Alvisi, University of Bologna - Department of Economics and Emanuela Carbonara, University of Bologna - Department of Economics explain Bundling and Compatibility: Selling the Whole Package May Be Pro-Competitive.

ABSTRACT: In this paper we study price competition, equilibrium market configurations and entry decisions when firms compete in vertically-differentiated markets producing complementary goods. We show that allowing firms to sell complementary goods may be welfare-enhancing and pro-competitive. In fact, such strategy favors the entry of new firms producing lower-quality components. Moreover, this strategy increases consumer surplus, even when firms sell the two complements as a bundle. Interestingly, notwithstanding the increase in competition, it is always optimal for firms to enter a complementary good market. By discouraging such practices, antitrust authorities may harm both consumers and low-quality firms, at the same time undermining market stability.

http://lawprofessors.typepad.com/antitrustprof_blog/2010/07/bundling-and-compatibility-selling-the-whole-package-may-be-procompetitive.html

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