NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Tying, Upgrades, and Switching Costs in Durable-Goods Markets

Dennis W. Carlton, Michael Waldman

NBER Working Paper No. 11407
Issued in June 2005
NBER Program(s):   IO

This paper investigates the role of product upgrades and consumer switching costs in the tying of complementary products. Previous analyses of tying have found that a monopolist of one product cannot increase its profits and reduce social welfare by tying and monopolizing a complementary product if the initial monopolized product is essential, where essential means that all uses of the complementary good require the initial monopolized product. We show that this is not true in durable-goods settings characterized by product upgrades, where we show tying is especially important when consumer switching costs are present. In addition to our results concerning tying our analysis also provides a new rationale for leasing in durable-goods markets. We also discuss various extensions including the role of the reversibility of tying as well as the antitrust implications of our analysis.

download in pdf format
   (200 K)

email paper

This paper is available as PDF (200 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w11407

Users who downloaded this paper also downloaded these:
Choi, Laibson, and Madrian w11554 $100 Bills on the Sidewalk: Suboptimal Investment in 401(k) Plans
Carlton, Gans, and Waldman w13339 Why Tie A Product Consumers Do Not Use?
Zettelmeyer, Scott Morton, and Silva-Risso w11515 How the Internet Lowers Prices: Evidence from Matched Survey and Auto Transaction Data
Carlton and Waldman w6831 The Strategic Use of Tying to Preserve and Create Market Power in Evolving Industries
Pesendorfer and Schmidt-Dengler w9726 Identification and Estimation of Dynamic Games
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us