Compatibility and Bundling of Complementary Goods in a Duopoly

Matutes, Carmen; Régibeau, Pierre

doi:10.2307/2950626

Cited by 253 publications

(187 citation statements)

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“…Similarly, when rms \bundle" products (see, e.g., Whinston (1990), Matutes and Regibeau (1992), Nalebu (2000, forthcoming)) they are creating contractual shopping costs between their products; we discuss bundling brie y in Sections 2.7.3 and 2.8.…”

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confidence: 99%

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Coordination and Lock-In: Competition with Switching Costs and Network Effects

2006

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PRELIMINARY DRAFT: PLEASE SEND COMMENTSKEYWORDS: switching costs, network e ects, lock-in, network externalities, co-ordination, indirect network e ects JEL CLASSIFICATIONS: L130 market structure, rm strategy and market performance: oligopoly and other imperfect markets; monopolistic competition; contestable markets L150 information and product quality; standardization and compatibility L120 market structure, rm strategy and market performance: monopoly L140 transactional relationships: contracts and reputation: networks D430 market structure and pricing: oligopoly and other forms of market imperfection D420 market structure and pricing: monopoly. ACKNOWLEDGMENTS: We're grateful to many friends and colleagues for numerous helpful suggestions and comments over several substantial rewrites of this paper since our rst 1997 draft. Special thanks are due to Alan Beggs, Simon AbstractSwitching costs and network e ects bind customers to vendors if products are incompatible, locking customers or even markets in to early choices. Lock-in hinders customers from changing suppliers in response to (predictable or unpredictable) changes in e ciency, and gives vendors lucrative ex post market power|over the same buyer in the case of switching costs (or brand loyalty), or over others with network e ects.Firms compete ex ante for this ex post power, using penetration pricing, introductory o ers, and price wars. Such \competition for the market" or \life-cycle competition" can adequately replace ordinary compatible competition, and can even be ercer than compatible competition by weakening di erentiation. More often, however, incompatible competition not only involves direct e ciency losses but also softens competition and magni es incumbency advantages. With network e ects, established rms have little incentive to o er better deals when buyers' and complementors' expectations hinge on non-e ciency factors (especially history such as past market shares), and although competition between incompatible networks is initially unstable and sensitive to competitive o ers and random events, it later \tips" to monopoly, after which entry is hard, often even too hard given incompatibility. And while switching costs can encourage small-scale entry, they discourage sellers from raiding one another's existing customers, and so also discourage more aggressive entry.Because of these competitive e ects, even ine cient incompatible competition is often more pro table than compatible competition, especially for dominant rms with installed-base or expectational advantages. Thus rms probably seek incompatibility too often. We therefore favor thoughtfully pro-compatibility public policy.

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confidence: 99%

“…83 Matutes and Regibeau (1992) allowed rms to set separate prices for bundles (not necessarily the sum of the component prices) and found that the force toward compatibility weakens. Furthermore, compatibility also changes the structure of demand, so even Matutes and Regibeau (1988) found that rms are sometimes biased towards incompatibility.…”

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confidence: 99%

Coordination and Lock-In: Competition with Switching Costs and Network Effects

2006

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“…Bundling of complementary products in duopoly were considered in (Einhorn, 1992) and (Matutes and Regibeau, 1992). In (Matutes and Regibeau, 1992), the consumer can combine the products from different firms, which is not possible in our case. A firm will not provide service to product manufactured from a competing firm.…”

Section: Duopoly In the Product Marketmentioning

confidence: 99%

Bundling and pricing of product with after-sale services

Kameshwaran

Viswanadham

Desai

2009

IJOR

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Bundling is the sale of two or more products in combination as a package. In this paper we consider the bundling and pricing of a complex durable product with the after-sales repair and maintenance services. The product and service are two different, but related markets for this scenario. The problem of bundling and pricing are considered for two product market structures: monopoly and duopoly. In the monopoly case, the decision framework is an optimization problem, whereas for the duopoly, the strategic interactions of the two firms are modeled as a two stage non-cooperative game. These decision frameworks enable the manufacturing firms to decide upon the product-service bundling and pricing.

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“…This is related also to the notion of compatibility. From the market perspective, pure bundling is equivalent to making the products incompatible with rival ones; see, for example, Matutes and Regibeau (1992). …”

Section: Pure Bundlingmentioning

confidence: 99%

Tying and Entry Deterrence in Vertically Differentiated Markets

Kováč

2005

SSRN Journal

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This paper analyzes tying and bundling as an entry deterrence tool. It shows that a multi-product firm can defend its monopoly position in one market via tying also when it does not have market power in another market. This is shown on a model with two complementary goods, each of which is vertically differentiated and consumers' preferences for the goods are positively correlated. Some implications for competition policy are discussed.

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Compatibility and Bundling of Complementary Goods in a Duopoly

Cited by 253 publications

References 15 publications

Coordination and Lock-In: Competition with Switching Costs and Network Effects

Coordination and Lock-In: Competition with Switching Costs and Network Effects

Bundling and pricing of product with after-sale services

Tying and Entry Deterrence in Vertically Differentiated Markets

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