Raising Rivals' Costs in Complementary Goods Markets: LECs Entering into Long Distance and Microsoft Bundling Internet Explorer

摘要

Frequently, a monopolist or dominant firm in an input market also sells a complementaryproduct for which the input is indispensable. It is often the case that the monopolist facessignificant competition in the complementary goods markets. For example, a LEC is amonopolist in the provision of terminating and originating access for long distance service. Ifit were presently allowed to offer long distance service, it would be competing with a number ofother carriers. In a second important example, Microsoft is dominant in the operatingsystems market for personal computers and it also sells various applications that require theuse of the operating system. In many of the applications markets, such as the market forinternet browsers, Microsoft faces significant competition. -This paper shows that the monopolist has incentives (i) to raise the costs of its rivals in thecomplementary markets; and (ii) to degrade the quality of the monopolized good when thisgood is combined with complementary goods of its competitors. Such behavior is expectedby LECs once they enter the long distance market. Microsoft may also have exhibited suchbehavior by (i) bundling Internet Explorer with Windows95; and (ii) by seamlessly integratingInternet Explorer 4.0 with Windows Explorer in Windows95 and Windows98.