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| Author: | Heeb, R. |
| Title: | Innovation and Vertical Integration in Complementary Markets |
| Journal: | Journal of Economics & Management Strategy
2003 : FALL, VOL. 12:3, p. 387-418 |
| Index terms: | VERTICAL INTEGRATION INNOVATION COMPLEMENTARY GOODS PRICING |
| Language: | eng |
| Abstract: | This paper studies vertical integration by an essential- good monopolist into complementary markets. Unlike previous studies of complementary products, consumers are allowed to purchase some components of a complementary basket, but not others. Two different pricing strategies by the integrated firm may emerge. In mass-market equilibria, the price of the complement under integration is zero and it is given away with the essential good. Niche-market equilibria have more conventional pricing. This dichotomy is consistent with consumer software pricing. Integration enhances consumer and total surplus, unless it leads to exit by the higher-quality rival, in which case welfare is reduced. |
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