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COMPLEMENTARY MONOPOLY AND WELFARE: IS SPLITTING UP SO BAD? *
Author(s) -
MCHARDY JOLIAN
Publication year - 2006
Publication title -
the manchester school
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.361
H-Index - 42
eISSN - 1467-9957
pISSN - 1463-6786
DOI - 10.1111/j.1467-9957.2006.00496.x
Subject(s) - monopoly , collusion , economics , cournot competition , competition (biology) , microeconomics , deadweight loss , consumer welfare , welfare , industrial organization , market economy , ecology , biology
We derive an original measure of dead‐weight loss (DWL) in an m ‐sector complementary monopoly and show that with non‐collusive pricing DWL may be seriously understated if demand complementarities are ignored, even when m is small. Since DWL generally increases with m and with less collusive pricing, separating monopoly into complementary monopoly (risking reduced price collusion) may be a bad static move. To illustrate, separating Microsoft into two non‐collusive complementary monopolies may increase DWL from $4 billion to $7 billion (for 2002–3). However, we show that such a policy may be welfare improving with even relatively modest post‐separation entry and Cournot quantity competition.