One step forward, two steps back: Mergers, Bundling, and Foreclosure in Dynamic Complementary Markets
-Industrial Organization Seminar
* Joint with Courthoud, Matteo
Abstract: In this paper, we build a dynamic computational model of mergers, bundling, and foreclosure in complementary markets with increasing returns in at least one of the markets. While competition authorities nominally think of mergers of complementary products as welfare-increasing, the authors show that it's a case of "one step forward, but two steps back": consumer surplus initially increases from a merger and the bundling of complementary goods, but later declines significantly as pricing to encourage rivals' exit and bundling forecloses rivals in both markets. They show that policy interventions like restrictions on mergers (e.g. no mergers between market leaders), bundling (e.g. no asymmetric bundling, i.e. one firm can't bundle unless a rival also can), and/or data sharing (limiting the benefits of the increasing returns) can all make markets more competitive in the long run, increasing consumer welfare.