IDEAS home Printed from https://ideas.repec.org/a/bla/jemstr/v1y1992i4p651-75.html
   My bibliography  Save this article

Integration, Complementary Products, and Variety

Author

Listed:
  • Church, Jeffrey
  • Gandal, Neil

Abstract

This paper examines the incentives for integration when the market for consumer durables (hardware) is oligopolistic and the market for complementary services (software) is monopolistically competitive. We find that the equilibrium industry structure will depend on the magnitude of the fixed costs of software development. If the software development costs are relatively large, the equilibrium industry structure is unintegrated, that is, neither hardware firm integrates; if the software development costs are relatively small, the equilibrium industry structure is integrated, that is, both hardware firms integrate. Under the integrated industry structure, hardware profits are lower, less varieties are provided, and hardware prices are lower than under the unintegrated industry structure. The game has a prisoners' dilemma structure when the software development costs are relatively small because of a foreclosure effect. Strategically increasing the number of software varieties provides an avenue for an integrated hardware firm to increase its market share and profits by reducing the number of software varieties available for an unintegrated rival technology. Although consumer surplus is higher under an integrated industry structure, the total surplus associated with the unintegrated industry structure exceeds that of the integrated industry structure.
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another vers
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Church, Jeffrey & Gandal, Neil, 1992. "Integration, Complementary Products, and Variety," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 1(4), pages 651-675, Winter.
    • Handle: RePEc:bla:jemstr:v:1:y:1992:i:4:p:651-75
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Economides, Nicholas & Salop, Steven C, 1992. "Competition and Integration among Complements, and Network Market Structure," Journal of Industrial Economics, Wiley Blackwell, vol. 40(1), pages 105-123, March.
    2. Oliver Hart & Jean Tirole, 1990. "Vertical Integration and Market Foreclosure," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 21(1990 Micr), pages 205-286.
    3. Ordover, Janusz A. & Saloner, Garth, 1989. "Predation, monopolization, and antitrust," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 9, pages 537-596, Elsevier.
    4. G.F. Mathewson & R.A. Winter, 1984. "An Economic Theory of Vertical Restraints," RAND Journal of Economics, The RAND Corporation, vol. 15(1), pages 27-38, Spring.
    5. Fudenberg, Drew & Tirole, Jean, 1984. "The Fat-Cat Effect, the Puppy-Dog Ploy, and the Lean and Hungry Look," American Economic Review, American Economic Association, vol. 74(2), pages 361-366, May.
    6. Whinston, Michael D, 1990. "Tying, Foreclosure, and Exclusion," American Economic Review, American Economic Association, vol. 80(4), pages 837-859, September.
    7. Martin K. Perry & Robert H. Groff, 1985. "Resale Price Maintenance and Forward Integration into a Monopolistically Competitive Industry," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 100(4), pages 1293-1311.
    8. Ordover, Janusz A & Saloner, Garth & Salop, Steven C, 1990. "Equilibrium Vertical Foreclosure," American Economic Review, American Economic Association, vol. 80(1), pages 127-142, March.
    9. Lin, Y Joseph, 1988. "Oligopoly and Vertical Integration: Note," American Economic Review, American Economic Association, vol. 78(1), pages 251-254, March.
    10. Shy, O. & Chou, C-F., 1990. "Partially Compatible Brands And Consumer Welfare," Papers 34-90, Tel Aviv.
    11. Church, Jeffrey & Gandal, Neil, 1992. "Network Effects, Software Provision, and Standardization," Journal of Industrial Economics, Wiley Blackwell, vol. 40(1), pages 85-103, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Conrad, Klaus, 2004. "Network effects, Compatibility and the Environment : The Case of Hydrogen Powered Cars," Discussion Papers 613, Institut fuer Volkswirtschaftslehre und Statistik, Abteilung fuer Volkswirtschaftslehre.
    2. Nicholas Economides, 1997. "The Economics of Networks," Brazilian Electronic Journal of Economics, Department of Economics, Universidade Federal de Pernambuco, vol. 1(0), December.
    3. Knittel, Christopher R. & Stango, Victor, 2011. "Strategic incompatibility in ATM markets," Journal of Banking & Finance, Elsevier, vol. 35(10), pages 2627-2636, October.
    4. Conrad Klaus, 2009. "Engines Powered by Renewable Energy, the Network of Filling Stations and Compatibility Decisions," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 229(4), pages 362-381, August.
    5. Church, J. & Gandal, N., 1993. "Equilibrium Foreclosure and Complementary Products," Papers 9303, Calgary - Department of Economics.
    6. Conrad, Klaus, 2004. "Price Competition and Product Differentiation when Goods have Network Effects," Discussion Papers 612, Institut fuer Volkswirtschaftslehre und Statistik, Abteilung fuer Volkswirtschaftslehre.
    7. Church Jeffrey & Gandal Neil & Krause David, 2008. "Indirect Network Effects and Adoption Externalities," Review of Network Economics, De Gruyter, vol. 7(3), pages 1-22, September.
    8. Desruelle, Dominique & Gaudet, Gerard & Richelle, Yves, 1996. "Complementarity, coordination and compatibility: The role of fixed costs in the economics of systems," International Journal of Industrial Organization, Elsevier, vol. 14(6), pages 747-768, October.
    9. Knittel Christopher R. & Stango Victor, 2008. "Incompatibility, Product Attributes and Consumer Welfare: Evidence from ATMs," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 8(1), pages 1-42, January.
    10. repec:bla:germec:v:7:y:2006:i::p:339-361 is not listed on IDEAS
    11. Mathias Dewatripont & Patrick Legros, 2000. "Mergers in Emerging Markets with Network Externalities: The Case of Telecoms," CIG Working Papers FS IV 00-23, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
    12. Lazzarini, Sergio G., 2002. "The Performance Implications of Membership in Competing Firm Constellations: Evidence from the Global Airline Industry," Insper Working Papers wpe_23, Insper Working Paper, Insper Instituto de Ensino e Pesquisa.
    13. Church, Jeffrey & Gandal, Neil, 1996. "Strategic entry deterrence: Complementary products as installed base," European Journal of Political Economy, Elsevier, vol. 12(2), pages 331-354, September.
    14. Jeffrey Church & Neil Gandal, 2000. "Systems Competition, Vertical Merger, and Foreclosure," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 9(1), pages 25-51, March.
    15. Klaus CONRAD, 2005. "Price Competition and Product Differentiation when Goods have Network Effects," Industrial Organization 0502002, University Library of Munich, Germany.
    16. Masakazu Ishihara & Eitan Muller, 2020. "Software piracy and outsourcing in two-sided markets," Quantitative Marketing and Economics (QME), Springer, vol. 18(1), pages 61-124, March.
    17. Luís M. B. Cabral & Miguel Villas-Boas, 2005. "Bertrand Supertraps," Management Science, INFORMS, vol. 51(4), pages 599-613, April.
    18. Nicholas S. Economides & Glenn A. Woroch, 1992. "Benefits and Pitfalls of Network Interconnection," Working Papers 92-31, New York University, Leonard N. Stern School of Business, Department of Economics.
    19. Knittel, Christopher R. & Stango, Victor, 2011. "Strategic incompatibility in ATM markets," Journal of Banking & Finance, Elsevier, vol. 35(10), pages 2627-2636, October.
    20. Knittel Christopher R. & Stango Victor, 2008. "Incompatibility, Product Attributes and Consumer Welfare: Evidence from ATMs," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 8(1), pages 1-42, January.
    21. Klaus Conrad, 2006. "Price Competition and Product Differentiation when Goods have Network Effects," German Economic Review, Verein für Socialpolitik, vol. 7(3), pages 339-361, August.
    22. Dachrahn Wu & Ming Chang & Mei-Hua Chang, 2008. "Market coverage and “love of software variety” in the supporting services approach," Netnomics, Springer, vol. 9(2), pages 77-86, October.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Church, J. & Gandal, N., 1993. "Equilibrium Foreclosure and Complementary Products," Papers 9303, Calgary - Department of Economics.
    2. Dennis W. Carlton & Michael Waldman, 2002. "The Strategic Use of Tying to Preserve and Create Market Power in Evolving Industries," RAND Journal of Economics, The RAND Corporation, vol. 33(2), pages 194-220, Summer.
    3. Belleflamme,Paul & Peitz,Martin, 2015. "Industrial Organization," Cambridge Books, Cambridge University Press, number 9781107687899.
    4. Maija Halonen, 1994. "Endogenous Industry Structure in Vertical Duopoly," STICERD - Economics of Industry Papers 07, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    5. Nicholas Economides, 1997. "The Economics of Networks," Brazilian Electronic Journal of Economics, Department of Economics, Universidade Federal de Pernambuco, vol. 1(0), December.
    6. Nicholas Economides & Lawrence J. White, 1993. "One-Way Networks, Two-Way Networks, Compatibility, and Antitrust," Working Papers 93-14, New York University, Leonard N. Stern School of Business, Department of Economics.
    7. Mattoo, Aaditya, 1999. "Can no antitrust policy be better than some antitrust policy?," Policy Research Working Paper Series 2191, The World Bank.
    8. Etro, Federico, 2016. "Research in economics and industrial organization," Research in Economics, Elsevier, vol. 70(4), pages 511-517.
    9. Upender Subramanian & Jagmohan S. Raju & Z. John Zhang, 2013. "Exclusive Handset Arrangements in the Wireless Industry: A Competitive Analysis," Marketing Science, INFORMS, vol. 32(2), pages 246-270, March.
    10. Cooper, James C. & Froeb, Luke M. & O'Brien, Dan & Vita, Michael G., 2005. "Vertical antitrust policy as a problem of inference," International Journal of Industrial Organization, Elsevier, vol. 23(7-8), pages 639-664, September.
    11. Church, Jeffrey & Gandal, Neil, 1996. "Strategic entry deterrence: Complementary products as installed base," European Journal of Political Economy, Elsevier, vol. 12(2), pages 331-354, September.
    12. Nilssen, Tore & Sorgard, Lars, 1998. "Sequential horizontal mergers," European Economic Review, Elsevier, vol. 42(9), pages 1683-1702, November.
    13. Canoy, M.F.M. & van Damme, E.E.C. & Rey, P., 2004. "Dominance and monopolization," Other publications TiSEM e2bd13c5-fe22-4200-8dd1-a, Tilburg University, School of Economics and Management.
    14. Fumagalli, Chiara & Motta, Massimo, 2001. "Upstream mergers, downstream mergers, and secret vertical contracts," Research in Economics, Elsevier, vol. 55(3), pages 275-289, September.
    15. Abiru, Masahiro & Nahata, Babu & Raychaudhuri, Subhashis & Waterson, Michael, 1998. "Equilibrium structures in vertical oligopoly," Journal of Economic Behavior & Organization, Elsevier, vol. 37(4), pages 463-480, December.
    16. Shi, Guanming & Chavas, Jean-Paul, 2009. "On Pricing and Vertical Organization of Differentiated Products," Staff Paper Series 535, University of Wisconsin, Agricultural and Applied Economics.
    17. Lynne Pepall & George Norman, 2001. "Product Differentiation and Upstream‐Downstream Relations," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 10(2), pages 201-233, June.
    18. Bourreau, Marc & Hombert, Johan & Pouyet, Jerome & Schutz, Nicolas, 2007. "Wholesale Markets in Telecommunications," CEPREMAP Working Papers (Docweb) 0703, CEPREMAP.
    19. Stefan Buehler & Armin Schmutzler, 2004. "Intimidating Competitors � Endogenous Vertical Integration and Downstream Investment in Successive Oligopoly," SOI - Working Papers 0409, Socioeconomic Institute - University of Zurich, revised Jul 2005.
    20. Leonardo Medrano, 1999. "Market Foreclosure and Strategic Aspects of Vertical Agreements," Economía Mexicana NUEVA ÉPOCA, CIDE, División de Economía, vol. 0(1), pages 91-104, January-J.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:jemstr:v:1:y:1992:i:4:p:651-75. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.kellogg.northwestern.edu/research/journals/JEMS/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.