COMPLEMENTARY GOODS, MONOPOLY VS. MONOPOLY POWER: A REASSESSMENT OF MERGER EFFECTS

Serdar Dalkir (Micra Inc. USA)
David Eisenstadt (Micra Inc. USA)
Ari Gerstle (Cornell University)
Robert T. Masson (Cornell University)

This paper describes how a merger of complementary goods producers can be harmful to consumers, in contradiction to the conventional wisdom that such mergers are either beneficial or welfare neutral. It is demonstrated that traditional intuition that these mergers allow for elimination of double-marginalization relies on specific assumptions on the nature of competition and preferences of consumers. Also several previous studies that confirm the traditional result have failed to fully incorporate well-known results from the bundling literature. Using a model of oligopoly with vertically differentiated component goods, post-merger welfare results range from neutrality to full extraction by producers.