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Bundling and Foreclosure

Author

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  • Tina Kao
  • Flavio Menezes

Abstract

We examine a two-sector model characterized by monopoly provision in market 1 and perfect competition in market 2. We follow the set up in Martin (1999), but we consider the case where goods 1 and 2 can be either substitutes or complements. With this framework, we analyse the profit sacrifice required if the monopolist offers a bundle consisting of one unit of good 1 and k units of good 2 to foreclose the competitive sector. Our results show that foreclosing rivals via bundling is less costly when products are complements rather than substitutes.

Suggested Citation

  • Tina Kao & Flavio Menezes, 2006. "Bundling and Foreclosure," ANU Working Papers in Economics and Econometrics 2006-478, Australian National University, College of Business and Economics, School of Economics.
    • Handle: RePEc:acb:cbeeco:2006-478
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    File URL: https://www.cbe.anu.edu.au/researchpapers/econ/wp478.pdf
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    References listed on IDEAS

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    1. Martin, Stephen, 1999. "Strategic and welfare implications of bundling," Economics Letters, Elsevier, vol. 62(3), pages 371-376, March.
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    More about this item

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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