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PRODUCT BUNDLING AND INCENTIVES FOR MERGERS AND STRATEGIC ALLIANCES
Author(s) -
MIALON SUE H.
Publication year - 2014
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/ecin.12047
Subject(s) - tying , incentive , competition (biology) , economics , value (mathematics) , industrial organization , strategic complements , alliance , product (mathematics) , microeconomics , complementary good , strategic alliance , business , geometry , mathematics , ecology , machine learning , computer science , political science , law , biology
This paper analyzes firms' choice of a merger or a strategic alliance in bundling their products with other complementary products. Tying two products of unequal value makes them equally valuable as they become inseparable for purchase. Consequently, firms can charge a higher price for the bundled products than before. If foreclosure is not the main purpose of bundling, firms would prefer strategic alliances to mergers because mergers only intensify competition by internalizing the complementarities of two products. In equilibrium, bundling occurs only through strategic alliances . ( JEL L4, L11, L13, L23)