•   •   •   •

Download the Paper (220 K, PDF file) - November 1, 2005 Tell a colleague about it. Printing Tips: Select 'print as image' in the Acrobat print dialog if you have trouble printing.

ABSTRACT:
In a winner-take-all duopoly market for systems in which firms invest to improve their products, a vertically integrated monopoly supplier of an essential system component may have an incentive to advantage itself by technological tying; that is, by designing the component to work better in its own system. If the vertically integrated firm is prevented from technologically tying, then there is an equilibrium in which the more efficient firm invests and serves the entire market. However, another equilibrium may exist in which the less efficient firm invests and captures the market. Technological tying enables a vertically integrated firm to foreclose its rival. The welfare implications of technological tying are ambiguous and depend on the asymmetric qualities of the system suppliers and on equilibrium selection.

SUGGESTED CITATION:
Richard J. Gilbert and Michael H. Riordan, "Product Improvement and Technological Tying in a Winner-Take-All Market" (November 1, 2005). Competition Policy Center. Paper CPC07-064.
http://repositories.cdlib.org/iber/cpc/CPC07-064