TY  - JOUR
AU  - Carlton,Dennis W.
AU  - Waldman,Michael
TI  - Tying, Upgrades, and Switching Costs in Durable-Goods Markets
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 11407
PY  - 2005
Y2  - June 2005
UR  - http://www.nber.org/papers/w11407
L1  - http://www.nber.org/papers/w11407.pdf
N1  - Author contact info:
Dennis W. Carlton
Booth School of Business
University of Chicago
5807 S. Woodlawn Ave.
Chicago, IL 60637
Tel: 847/217-6000
Fax: 312/322-0262
E-Mail: dennis.carlton@chicagobooth.edu

Michael Waldman
Johnson Graduate School of Management
323 Sage Hall
Cornell University
Ithaca, NY  14853-6201
Tel: (607) 255-8631
Fax: (607) 254-4590
E-Mail: mw46@cornell.edu
AB  - 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.
ER  -