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Compatibility and Bundling with Generalist and Specialist Firms
Author(s) -
Denicolo Vincenzo
Publication year - 2000
Publication title -
the journal of industrial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.93
H-Index - 77
eISSN - 1467-6451
pISSN - 0022-1821
DOI - 10.1111/1467-6451.00117
Subject(s) - generalist and specialist species , incentive compatibility , compatibility (geochemistry) , incentive , business , component (thermodynamics) , industrial organization , microeconomics , marketing , economics , ecology , biology , engineering , physics , chemical engineering , habitat , thermodynamics
I analyze compatibility and bundling choices when one generalist firm offering both components of a system competes against two specialist firms each supplying one component only (but not the same one). I show that the generalist firm may have an incentive to choose incompatibility or engage in pure bundling when one component is less differentiated than the other. In this case, the system is more differentiated than the relatively undifferentiated component, and so under incompatibility the specialist firm that produces the undifferentiated component will relax price competition. This may result in higher profits for some of the competing firms.