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On Stability in Competition: Tying and Horizontal Product Differentiation

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Abstract

We combine Hotelling’s model of product differentiation with tie-in sales. A monopolist in one market competes with another firm in a second market. In equilibrium firms choose zero product differentiation. Due to the tying structure no firm can gain the whole market by a small price reduction. A differentiation effect due to tie-in sales leads to this equilibrium stability.

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  1. University of Bern, Volkswirtschaftliches Institut, Abteilung für Wirtschaftstheorie, Schanzeneckstrasse 1, Postfach 8573, CH-3001, Bern, Switzerland

    Alain Egli

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  1. Alain Egli
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Correspondence to Alain Egli.

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Egli, A. On Stability in Competition: Tying and Horizontal Product Differentiation. Rev Ind Organ 30, 29–38 (2007). https://doi.org/10.1007/s11151-007-9127-y

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  • DOI: https://doi.org/10.1007/s11151-007-9127-y

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