[open-economics] Leveraging Monopoly Power by Degrading Interoperability

[Guo Xu]

Dear all,

Just wanted to point to a recent working paper that might interest you:

http://papers.nber.org/papers/w17172

Leveraging Monopoly Power by Degrading Interoperability: Theory and
Evidence from Computer Markets
Christos Genakos, Kai-Uwe Kühn, John Van Reenen
NBER Working Paper No. 17172
Issued in June 2011
NBER Program(s):   IO   PR
When will a monopolist have incentives to foreclose a complementary
market by degrading compatibility/interoperability of his products
with those of rivals? We develop a framework where leveraging extracts
more rents from the monopoly market by “restoring” second degree price
discrimination. In a random coefficient model with complements we
derive a policy test for when incentives to reduce rival quality will
hold. Our application is to Microsoft’s strategic incentives to
leverage market power from personal computer to server operating
systems. We estimate a structural random coefficients demand system
which allows for complements (PCs and servers). Our estimates suggest
that there were incentives to reduce interoperability which were
particularly strong at the turn of the 21st Century.

Best,

Guo