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Dominant firm and competitive bundling in oligopoly markets

Author

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  • Shuai, Jie
  • Yang, Huanxing
  • Zhang, Lan

Abstract

This paper studies competitive bundling in an oligopoly market with one multi-product dominant firm and several symmetric small firms. In the model of (competing against) specialists each small firm produces a single product, while in the model of (competing against) generalists each small firm produces multiple products. In the model of specialists, we show that the dominant firm will bundle if and only if its dominance level is relatively high. In the model of generalists, the dominant firm's incentive to bundle is stronger than small firms'. In particular, we find that (i) when the dominance level is low enough (and the number of firms is not too large), bundling hurts all firms and no firm bundles; (ii) when the dominance level is relatively high, the dominant firm bundles while small firms sell separately. We also study the impacts of bundling on welfare and derive implications for anti-trust policies.

Suggested Citation

  • Shuai, Jie & Yang, Huanxing & Zhang, Lan, 2022. "Dominant firm and competitive bundling in oligopoly markets," Games and Economic Behavior, Elsevier, vol. 132(C), pages 421-447.
    • Handle: RePEc:eee:gamebe:v:132:y:2022:i:c:p:421-447
    DOI: 10.1016/j.geb.2022.01.007
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    More about this item

    Keywords

    Bundling; Tying; Dominance; Product compatibility; Oligopoly;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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