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Leveraging monopoly power by limiting interoperability: theory and evidence from computer markets

Accepted version
Peer-reviewed

Type

Article

Change log

Authors

Genakos, C 
Kuehn, KU 
Van Reener, J 

Abstract

When will a monopolist have incentives to foreclose a complementary market by degrading compatibility/interoperability of his products with those of rivals? We develop a framework where leveraging extracts more rents from the monopoly market by "restoring" second degree price discrimination. In a random coefficient model with complements we derive a policy test for when incentives to reduce rival quality will hold. Our application is to Microsoft's strategic incentives to leverage market power from personal computer to server operating systems. We estimate a structural random coefficients demand system which allows for complements (PCs and servers). Our estimates suggest that there were incentives to reduce interoperability which were particularly strong at the turn of the 21st Century.

Description

Keywords

38 Economics, 3801 Applied Economics, 3803 Economic Theory

Journal Title

Economica

Conference Name

Journal ISSN

0013-0427
1468-0335

Volume Title

85

Publisher

Wiley-Blackwell