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Bundling as an Entry Barrier

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Author Info
Barry Nalebuff

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Abstract

In this paper we look at the case for bundling in an oligopolistic environment. We show that bundling is a particularly effective entry-deterrent strategy. A company that has market power in two goods, A and B , can, by bundling them together, make it harder for a rival with only one of these goods to enter the market. Bundling allows an incumbent to credibly defend both products without having to price low in each. The traditional explanation for bundling that economists have given is that it serves as an effective tool of price discrimination by a monopolist. Although price discrimination provides a reason to bundle, the gains are small compared with the gains from the entry-deterrent effect. © 2004 the President and Fellows of Harvard College and the Massachusetts Institute of Technology

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Publisher Info
Article provided by MIT Press in its journal The Quarterly Journal of Economics.

Volume (Year): 119 (2004)
Issue (Month): 1 (February)
Pages: 159-187
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Handle: RePEc:tpr:qjecon:v:119:y:2004:i:1:p:159-187

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  1. Andrea Fosfuri & Marco S. Giarratana, 2004. "Product Strategies And Startups’ Survival In Turbulent Industries: Evidence From The Security Software Industry," Business Economics Working Papers wb044816, Universidad Carlos III, Departamento de Economía de la Empresa. [Downloadable!]
  2. Shi, Guanming, 2006. "Intellectual Property Rights, Genetic Use Restriction Technologies (GURTs), and Strategic Behavior," 2006 Annual meeting, July 23-26, Long Beach, CA 21434, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
  3. repec:mop:credwp:06.10.66 is not listed on IDEAS
  4. Armstrong, Mark & Vickers, John, 2008. "Competitive nonlinear pricing and bundling," MPRA Paper 70, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  5. Sang Kim & Dong-Ju Kim, 2005. "One-phone service and mobile market foreclosure," Netnomics, Springer, vol. 7(1), pages 59-68, April. [Downloadable!] (restricted)
  6. Reisinger, Markus, 2004. "The Effects of Product Bundling in Duopoly," Discussion Papers in Economics 477, University of Munich, Department of Economics. [Downloadable!]
  7. Jay Pil Choi, 2004. "Antitrust Analysis of Tying Arrangements," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  8. Thibaud Vergé, 2003. "Portfolio Effects and Merger Control: Full-line Forcing as an Entry Deterrence Strategy," Industrial Organization 0301010, EconWPA. [Downloadable!]
  9. David A. Miller, 2005. "Invention under uncertainty and the threat of ex post entry," Industrial Organization 0510001, EconWPA. [Downloadable!]
    Other versions:
  10. Dennis W. Carlton & Michael Waldman, 2005. "Tying, Upgrades, and Switching Costs in Durable-Goods Markets," NBER Working Papers 11407, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  11. repec:mop:credwp:08.03.74 is not listed on IDEAS
  12. Justus Haucap & Tobias Hartwich & André Uhde, 2005. "Besonderheiten und Wettbewerbsprobleme des Marktes für wissenschaftliche Fachzeitschriften," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 74(3), pages 84-107. [Downloadable!] (restricted)
  13. Sue Mialon, 2009. "Exclusionary Bundling: The Motive for Mergers," Emory Economics 0907, Department of Economics, Emory University (Atlanta). [Downloadable!]
  14. Gregory Crawford, 2008. "The discriminatory incentives to bundle in the cable television industry," Quantitative Marketing and Economics, Springer, vol. 6(1), pages 41-78, March. [Downloadable!] (restricted)
  15. Bauer, Johannes M., 2005. "Bundling, Differentiation, Alliances and Mergers: Convergence Strategies in U.S. Communication Markets," MPRA Paper 2515, University Library of Munich, Germany. [Downloadable!]
  16. Laurent Granier & Marion Podesta, 2008. "Mixed Bundling and Mergers," Cahiers du LASER (LASER Working Papers) 2008.23, LASER (Laboratoire de Science Economique de Richter), Faculty of Economics, University of Montpellier 1. [Downloadable!]
  17. Judith Chevalier & Fiona Scott Morton, 2006. "State Casket Sales and Restrictions: A Pointless Undertaking?," NBER Working Papers 12012, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  18. Dennis W. Carlton & Joshua S. Gans & Michael Waldman, 2007. "Why Tie A Product Consumers Do Not Use?," NBER Working Papers 13339, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  19. Useche, Pilar & Barham, Brad & Foltz, Jeremy, 2005. "A Trait Specific Model of GM Crop Adoption among U.S. Corn Farmers in the Upper Midwest," 2005 Annual meeting, July 24-27, Providence, RI 19202, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
  20. Ramon Casadesus-Masanell & Barry Nalebuff & David B. Yoffie, 2007. "Competing Complements," Working Papers 07-44, NET Institute, revised Nov 2007. [Downloadable!]
  21. Fang, Hanming & Norman, Peter, 2005. "To Bundle or Not to Bundle," Micro Theory Working Papers norman-05-06-10-08-19-02, Microeconomics.ca Website, revised 10 Jun 2005. [Downloadable!]
    Other versions:
  22. Doh-Shin Jeon & Domenico Menicucci, 2009. "Bundling and Competition for Slots: Sequential Pricing," Economics Working Papers 1168, Department of Economics and Business, Universitat Pompeu Fabra. [Downloadable!]
  23. Doh-Shin Jeon & Domenico Menicucci, 2009. "Bundling and Competition for Slots: On the Portfolio Effects of Bundling," Economics Working Papers 1152, Department of Economics and Business, Universitat Pompeu Fabra, revised Jul 2009. [Downloadable!]
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