Complementarity without Superadditivity
The distinction between complements, substitutes, and independent goods is important in many contexts. It is well known that when consumers’ conditional indirect utilities for two goods are superadditive, the goods are gross complements. Generalizing insights in Gans and King (2006) and Gentzkow (2007), we show that superadditivity between one pair of goods can also introduce complementarity between competing pairs of goods. One implication is that lower prices can result from a merger between producers of goods that themselves offer no superadditivity.
The authors served as consultants to AT&T in its merger with DIRECTV. Early versions of the results presented here were discussed in filings with the U.S. Department of Justice and Federal Communications Commission on behalf of AT&T. We thank Joshua Gans for helpful comments and Wayne Gao for research assistance. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Berry, Steven & Haile, Philip & Israel, Mark & Katz, Michael, 2017. "Complementarity without superadditivity," Economics Letters, Elsevier, vol. 151(C), pages 28-30. citation courtesy of