The idea that an incumbent supplier may tie two complementary products to fend off potential entrants is popular among practitioners yet is not fully understood in formal economic theory. This article makes sense of the argument by formally deriving a dynamic version of the old leverage doctrine. We show that when an incumbent monopolist faces the threat of entry in all complementary components, tying may make the prospects of successful entry less certain, discouraging rivals from investing and innovating. Tie-in sales may reduce consumer and total economic welfare.
No takes yet. Share an insight, caveat, or question.
Choi et al. (2001) studied this question.
Synapse has enriched 5 related papers. Consider them for comparative context: