Antitrust Analysis of Mergers with Bundling in Complementary Markets:Implications for Pricing, Innovation, and Compatibility Choice

Abstract

This paper develops a simple model to analyze the effects of mergers in complementary system markets when the merged firm is able to engage in bundling. In the short-run analysis, I analyze the impact of (mixed) bundling on pricing decisions for existing generations of products. The basic model is then extended to analyze industry dynamics where the implications of mergers for innovation incentives and technical tying/compatibility decisions are explored. Welfare implications of mergers in the shortand long-run will be also analyzed.