The Strategic Use of Tying to Preserve and Create Market Power in Evolving Industries

This paper investigates how the tying of complementary products can be used to both preserve and create monopoly positions, where our focus is on the use of tying to deter the entry of efficient producers. We first show how a firm that is a monopolist of a product in the current period can use tying to preserve its monopoly position in the future. We then show using related arguments how a monopolist in one market can employ tying to extend its monopoly position into a newly emerging market. The analysis focuses on the importance of entry costs and network externalities. The paper includes a discussion of antitrust implications.