Antitrust & Competition Policy Blog

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

A Member of the Law Professor Blogs Network

Friday, April 6, 2012

Bundling, Competition and Quality Investment: a Welfare Analysis

Posted by D. Daniel Sokol

Alessandro Avenali (Dipartimento di Informatica e Sistemistica "Antonio Ruberti" Sapienza, Universita' di Roma), Anna D'Annunzio (Dipartimento di Informatica e Sistemistica "Antonio Ruberti" Sapienza, Universita' di Roma) and Pierfrancesco Reverberi (Dipartimento di Informatica e Sistemistica "Antonio Ruberti" Sapienza, Universita' di Roma) analyze Bundling, Competition and Quality Investment: a Welfare Analysis.

ABSTRACT: We show how a monopolist in a primary market uses mixed bundling to extract surplus from quality-enhancing investment by a single-product rival in a complementary market, or even force the rival to provide low quality. In our model, bundling does not hinge on commitment ability. Although we assume that bundling creates efficiency gains, we find that bundling reduces consumer surplus and may reduce social welfare, even if the rival is not foreclosed, and investment is not blockaded. Nonetheless, bundling improves welfare when prevents inefficient investment. We propose to check bundled offers via a price test that controls the monopoly component stand-alone price to preserve efficiencies from both bundling and investment. When the rival invests, the test improves consumer surplus and welfare compared with the 'do-nothing' scenario, or a ban on bundling. The test is not consistent with the predatory pricing framework. Qualitative results hold when we endogenize the bundling strategy.

http://lawprofessors.typepad.com/antitrustprof_blog/2012/04/bundling-competition-and-quality-investment-a-welfare-analysis.html

| Permalink

TrackBack URL for this entry:

http://www.typepad.com/services/trackback/6a00d8341bfae553ef016302ad76aa970d

Listed below are links to weblogs that reference Bundling, Competition and Quality Investment: a Welfare Analysis:

Comments

Post a comment