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Tying as a Response to Demand Uncertainty

Author

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  • Frank Mathewson
  • Ralph A. Winter

Abstract

This article examines requirements tying of a competitively supplied good to a monopolized good. It expands the set of market conditions in which this instrument is known to be profitable. With heterogeneous, privately informed buyers, a firm can profit by tying two goods even when demands for the goods are price independent - providing the demands are stochastically dependent. We investigate the profitability of tying as a response to stochastic demand, as well as the effects of tying on prices and the extent of the market served.

Suggested Citation

  • Frank Mathewson & Ralph A. Winter, 1997. "Tying as a Response to Demand Uncertainty," RAND Journal of Economics, The RAND Corporation, vol. 28(3), pages 566-583, Autumn.
    • Handle: RePEc:rje:randje:v:28:y:1997:i:autumn:p:566-583
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    Citations

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    Cited by:

    1. Hollander, Claude & Hollander, Abraham, 2006. "Triple Play Time," MPRA Paper 3552, University Library of Munich, Germany.
    2. Lipnowski, Elliot & Ramos, João, 2020. "Repeated delegation," Journal of Economic Theory, Elsevier, vol. 188(C).
    3. Amit Gayer & Avishay Aiche & Eli Gimmon, 2022. "Online sequential bundling: profit analysis and practice," Electronic Commerce Research, Springer, vol. 22(4), pages 1351-1375, December.
    4. Rosenkranz, Stephanie & Schmitz, Patrick W., 2001. "Vertikale Unternehmenskooperationen," MPRA Paper 6930, University Library of Munich, Germany.
    5. Greenlee, Patrick & Reitman, David & Sibley, David S., 2008. "An antitrust analysis of bundled loyalty discounts," International Journal of Industrial Organization, Elsevier, vol. 26(5), pages 1132-1152, September.
    6. Gavin, Sebnem & Ross, Thomas W., 2018. "Long-term contracts as barriers to entry with differentiated products," International Journal of Industrial Organization, Elsevier, vol. 59(C), pages 514-537.
    7. Gayer, Amit & Shy, Oz, 2016. "A welfare evaluation of tying strategies," Research in Economics, Elsevier, vol. 70(4), pages 623-637.
    8. Zhiyong Liu & Yue Qiao, 2012. "Abuse of Market Dominance Under China’s 2007 Anti-monopoly Law: A Preliminary Assessment," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 41(1), pages 77-107, August.
    9. Kenneth S. Corts, 2018. "How the source of the entrant's advantage limits entry‐deterring tying," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 51(2), pages 510-527, May.
    10. Margaret E. Slade, 1998. "The Leverage Theory of Tying Revisited: Evidence from Newspaper Advertising," Southern Economic Journal, John Wiley & Sons, vol. 65(2), pages 204-222, October.
    11. Marcel Goi'{c} & Kinshuk Jerath & Kannan Srinivasan, 2011. "Cross-Market Discounts," Marketing Science, INFORMS, vol. 30(1), pages 134-148, 01-02.
    12. Robert Innes & Stephen F. Hamilton, 2009. "Vertical restraints and horizontal control," RAND Journal of Economics, RAND Corporation, vol. 40(1), pages 120-143, March.
    13. Carrillo, Juan D. & Tan, Guofu, 2021. "Platform competition with complementary products," International Journal of Industrial Organization, Elsevier, vol. 77(C).
    14. 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.

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