DP13083 Upstream Bundling and Leverage of Market Power

Author(s): Alexandre de Cornière, Greg Taylor
Publication Date: July 2018
Keyword(s): Bundling, Exclusion, Vertical Relations
JEL(s): L1, L4
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=13083

Motivated by the recent Google-Android antitrust case, we present a novel rationale for bundling by a multiproduct upstream firm. Consider a market where downstream firms procure components from upstream suppliers. U1 is the only supplier of component A, but faces competition for component B. Suppose that component A increases demand for the downstream product and that contractual frictions induce positive wholesale markups. By bundling A and B, U1 reduces its B-rivals' willingness to offer slotting fees to the downstream firm, thereby allowing U1 to capture more of the industry profit. Bundling harms the downstream firm and the B rivals, and can be anticompetitive.