nep-ind New Economics Papers
on Industrial Organization
Issue of 2005‒02‒06
one paper chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. On Stability in Competition: Tying and Horizontal Product Differentiation By Alain Egli

  1. By: Alain Egli
    Abstract: We combine Hotelling’s model of product differentiation with tie-in sales. Tie-in sales condition the sale of one good upon the purchase of another good. In equilibrium firms choose zero product differentiation. Due to the tying structure no firm can gain the whole market by a small price reduction. Then we address the following questions: Can a firm with monopoly power in one market leverage this power into another market where it faces competition. What is the effect from tying on the profits of the monopolist’s rival. In our model this effect is ambiguous
    Keywords: Horizontal product differentiation; tie-in sales; leverage theory of tying; foreclosure
    JEL: D43 L11 L12 L13
    Date: 2005–01

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