Discussion paper

DP13083 Upstream Bundling and Leverage of Market Power

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.

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Citation

de Cornière, A and G Taylor (eds) (2018), “DP13083 Upstream Bundling and Leverage of Market Power”, CEPR Press Discussion Paper No. 13083. https://cepr.org/publications/dp13083