Systems competition, vertical merger, and foreclosure

Jeffrey Church, Neil Gandal

Research output: Contribution to journalArticlepeer-review

Abstract

We address the possibility of foreclosure in markets where the final good consists of a system composed of a hardware good and complementary software and the value of the system depends on the availability of software. Foreclosure occurs when a hardware firm merges with a software firm and the integrated firm makes its software incompatible with a rival technology or system. We find that foreclosure can be an equilibrium outcome where both the merger and compatibility decisions are part of a multistage game which .permits the foreclosed hardware firm to play a number of counter-strategies. Further, foreclosure can be an effective strategy to monopolize the hardware market.

Original languageEnglish
Pages (from-to)25-51
Number of pages27
JournalJournal of Economics and Management Strategy
Volume9
Issue number1
DOIs
StatePublished - 2000

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