Upstream Bundling and Leverage of Market Power

Abstract We present a novel rationale for bundling in vertical relations. In many markets, upstream firms compete to be the best downstream slots (e.g., shelf retail store or default application on platform). If multi-product firm faces competition subset of its products, we show that tying monopolised product with competitive ones can reduce rivals’ willingness offer slotting fees retailers. This strategy does not rely entry deterrence and achieved through contractual even virtual tying. The model is particularly relevant Google-Android case.