Wednesday, January 26, 2011
Posted by D. Daniel Sokol
Nic Economides (NYU - Stern School of Business) has a chapter on Tying, Bundling, and Loyalty/Requirement Rebates.
ABSTRACT: I discuss the impact of tying, bundling, and loyalty/requirement rebates on consumer surplus in the affected markets. I show that the Chicago School Theory of a single monopoly surplus that justifies tying, bundling, and loyalty/requirement rebates on the basis of efficiency typically fails. Thus, tying, bundling, and loyalty/requirement rebates can be used to extract consumer surplus and enhance profit of firms with market power. I discuss the various setups when this occurs.