Corresponding author: Michael Waldman, Johnson Graduate School of Management, Cornell University, Sage Hall, Ithaca, NY 14853, USA. Email: email@example.com.
Upgrades, Switching Costs and the Leverage Theory of Tying*
Article first published online: 28 NOV 2011
© 2011 The Author(s). The Economic Journal © 2011 Royal Economic Society
The Economic Journal
Volume 122, Issue 561, pages 675–706, June 2012
How to Cite
Carlton, D. W. and Waldman, M. (2012), Upgrades, Switching Costs and the Leverage Theory of Tying. The Economic Journal, 122: 675–706. doi: 10.1111/j.1468-0297.2011.02481.x
We thank seminar and conference participants at Cornell University, the University of Melbourne, the Joint Duke/Northwestern/Texas IO Theory Conference, the UBC Summer IO Conference, the International IO Conference, two anonymous referees, and the editor, David Myatt, for helpful comments. We also thank Justin Johnson for discussions helpful for the initial formulation of the ideas in the article.
- Issue published online: 1 JUN 2012
- Article first published online: 28 NOV 2011
- Submitted: 24 March 2010 Accepted: 6 August 2011
This article investigates the role of product upgrades and consumer switching costs in the tying of complementary products. Previous analyses have found that a monopolist of one product will not increase its profits and reduce social welfare by tying and leveraging its monopoly position into a complementary market if the initial monopolised product is essential, where essential means that all uses of the complementary good require the initial monopolised product. We show that this is not true in settings characterised by product upgrades and consumer switching costs. We also discuss various extensions including the role of the reversibility of tying.