Title: COMPLEMENTARY MONOPOLY AND WELFARE: IS SPLITTING UP SO BAD?*
Abstract:We derive an original measure of dead-weight loss (DWL) in an m-sector complementary monopoly and show that with non-collusive pricing DWL may be seriously understated if demand complementarities are ...We derive an original measure of dead-weight loss (DWL) in an m-sector complementary monopoly and show that with non-collusive pricing DWL may be seriously understated if demand complementarities are ignored, even when m is small. Since DWL generally increases with m and with less collusive pricing, separating monopoly into complementary monopoly (risking reduced price collusion) may be a bad static move. To illustrate, separating Microsoft into two non-collusive complementary monopolies may increase DWL from $4 billion to $7 billion (for 2002–3). However, we show that such a policy may be welfare improving with even relatively modest post-separation entry and Cournot quantity competition.Read More
Publication Year: 2006
Publication Date: 2006-05-22
Language: en
Type: article
Indexed In: ['crossref']
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Cited By Count: 18
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