Product Improvement and Technological Tying in a Winner-Take-All Market

Richard Gilbert and Michael H Riordan

Department of Economics, Working Paper Series from Department of Economics, Institute for Business and Economic Research, UC Berkeley

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.

Keywords: systems competition; foreclosure; innovation (search for similar items in EconPapers)
Date: 2005-11-01
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Related works:
Journal Article: PRODUCT IMPROVEMENT AND TECHNOLOGICAL TYING IN A WINNER‐TAKE‐ALL MARKET* (2007)
Working Paper: Product Improvement and Technological Tying in a Winner-Take-All Market (2005)
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