Innovation, Rent Extraction, and Integration in Systems Markets

@article{Farrell2001InnovationRE,
  title={Innovation, Rent Extraction, and Integration in Systems Markets},
  author={Joseph Farrell and Michael L. Katz},
  journal={Journal of Industrial Economics},
  year={2001},
  volume={48},
  pages={413-432}
}
We consider innovation incentives in markets where final goods comprise two strictly complementary components, one of which is monopolized. We focus on the case in which the complementary component is competitively supplied, and in which innovation is important. We explore ways in which the monopoly may have incentives to confiscate efficiency rents in the competitive sector, thus weakening or destroying incentives for independent innovation. We discuss how these problems are affected if the… 
The Effects of Integration on R&D Incentives in Systems Markets
We consider a systems market where two complementary components must be used in combination to provide valuable services. The market for the first component is monopolized whereas the market for the
Innovation in Vertically Related Markets
We examine the impact of vertical industry structure on upstream process innovation. We find that vertical integration (VI) generally enhances innovation under downstream Cournot competition, but can
The Entry Incentives of Complementary Producers: A Simple Model with Implications for Antitrust Policy
We model competition between two firms in an upstream-downstream relationship. Each firm can pay a sunk cost to enter the other's market. We show that coordination (e.g., through merger) can be
Vertical Integration and Technology Adoption
This paper examines vertical integration incentives in the presence of a cost-reducing technology. Combining the technology adoption and vertical merger literatures in a simple duopoly model, I show
Bundling and Compatibility: Selling the Whole Package May Be Pro-Competitive
In this paper we study price competition, equilibrium market configurations and entry decisions when firms compete in vertically-differentiated markets producing complementary goods. We show that
Complements and Potential Competition
In this paper we examine the effect of cooperation between complementary incumbent monopolists on consumer welfare. While divided technical leadership makes it difficult for firms to integrate into
Vertical integration and innovation
Innovation is a driving force for most industries, where it moreover affects many stages of the vertical chain. We study the impact of vertical integration on innovation in an industry where firms
Outsourcing , Vertical Integration , and Cost Reduction ∗
Vertical integration grants a downstream firm the option to source internally, which is advantageous as it avoids paying a markup, but disadvantageous insofar as it discourages investments by
Vertical Integration in the presence of a Cost-Reducing Technology
This paper examines vertical integration incentives in the presence of a cost-reducing technology. Combining the technology adoption and vertical merger literatures in a simple duopoly model, I show
Efficiency and the Provision of Open Platforms
Private firms may not have efficient incentives to allow third-party producers to access their platform or develop extensions for their products. Based on a two-sided market model, I discuss two
...
1
2
3
4
5
...

References

SHOWING 1-10 OF 16 REFERENCES
Monopoly, Quality, and Regulation
This paper deals with market problems that arise when a monopoly sets some aspect of product quality as well as price. It is argued that the market failure is associated with the inability of prices
Preemptive R&D, Rent Dissipation, and the “Leverage Theory”
This paper provides a new perspective on the validity of the so-called leverage theory. In a model of preemptive innovation in "systems" markets, I examine the effect of bundling on R&D incentives. I
Tying and Innovation: A Dynamic Analysis of Tying Arrangements
This paper analyses the effects of tying arrangements on R&D incentives. It shows that tying is a means through which a firm can commit to more aggressive R&D investment in the tied goods market.
The Strategic Use of Tying to Preserve and Create Market Power in Evolving Industries
This article investigates how the tying of complementary products can be used to preserve and create monopoly positions. We first show how a monopolist of a product in the current period can use
COMPETITION AND INTEGRATION AMONG COMPLEMENTS, AND NETWORK MARKET STRUCTURE*
This article analyzes the competition and integration among complementary products that can be combined to create composite goods or systems. The model generalizes the Cournot duopoly complements
Vertical Foreclosure with the Choice of Input Specifications
We develop an equilibrium model of vertical foreclosure with the choice of input specifications. Vertical foreclosure occurs as the upstream division of the integrated firm makes a specialized input
Vertical contractual relations
Publisher Summary This chapter discusses the contractual relationship between two parties at successive stages in the vertical chain of production and marketing for a good. Intermediate good markets
Tying, Foreclosure, and Exclusion
Tied sales have a long history of scrutiny under the antitrust laws of the United States. The primary basis for the condemnation of this practice has been the court's belief in what has come to be
Uniqueness in Sealed High Bid Auctions
** A much earlier version of this paper focussed on the symmetric case and the 2 bidder case under asymmetry. Comments by Bernard LeBrun are gratefully acknowledged.
Tying Arrangements and the Leverage Problem
...
1
2
...