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System Components, Network Effects, and Bundling

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  • Clements Matthew T.

    (University of British Columbia)

Abstract

I investigate the competition between suppliers of components of a system for which there are network effects among users. Bundling one of these components with an outside good reduces the cost to consumers of using the system. This cost reduction is not necessarily welfare-enhancing, and bundling can also reduce welfare by decreasing innovation incentives. The model is used to evaluate Microsoft's bundling of Windows with Internet Explorer and its effect on competition with Netscape.

Suggested Citation

  • Clements Matthew T., 2002. "System Components, Network Effects, and Bundling," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 2(1), pages 1-21, July.
    • Handle: RePEc:bpj:bejeap:v:topics.2:y:2002:i:1:n:7
    DOI: 10.2202/1538-0653.1046
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