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Tying and Innovation: A Dynamic Analysis of Tying Arrangements

Choi, Jay Pil

This paper analyzes the effects of tying arrangements on R&D incentives. It shows that tying is a means through which a firm can commit to more aggressive R&D investment in the tied goods market. Tying also has the strategic effect of reducing rivals' incentives to invest in R&D. The strategy of tying is a profitable one if the gains, via an increased share of dynamic rents in the tied goods market, exceed the losses that result from intensified price competition in the market. The welfare implications of tying, and consequently the appropriate antitrust policy, are shown to depend on the nature of R&D competition.

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Academic Units
Economics
Publisher
Department of Economics, Columbia University
Series
Department of Economics Discussion Papers, 9798-15
Published Here
March 7, 2011

Notes

May 1998

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