This paper presents a model of bundling and tying when the threat of entry provides the primary competitive constraint, but entrants have a disadvantage with respect to the incumbent, i.e., in a, “nearly contestable,” market. The entrant's disadvantage can be with respect to marginal costs,...

We incorporate marginal cost savings from bundling, fixed costs of productofferings, and variation in customer preferences into a model of bundling and tying. To focus on cost effects, we assume perfectly contestable markets and analyze sustainable product offerings. Pure bundling can arise...

Tying the sale of products that could be sold separately is common in competitive markets - from left and right shoes, to the sports and living sections of daily newspapers, to cars and radios. This paper presents a cost-based theory for why tying occurs in competitive markets and uses this...

By comparing the demand for a bundle and the vertical sum of the demands for its components, this article analyzes the profitability and welfare consequences of bundling. If it does not lower costs, bundling tends to be profitable when reservation values are negatively correlated and high...

I derive a Net Innovation Pressure (NIP) formula based on logic that is similar to the logic underlying Upward Pricing Pressure (UPP) and that takes account of R&D spillovers. As with UPP, diversion is a key determinant of NIP, but the price-cost margin is not. The formula, which is quite...

The growth of business firms is an example of a system of complex interacting units that resembles complex interacting systems in nature such as earthquakes. Remarkably, work in econophysics has provided evidence that the statistical properties of the growth of business firms follow the same...

This paper develops a methodology for simulating the effects of alternative corporate tax reforms on the stock market valuation and investment plans of individual firms. The methods are applied to estimate the effects of alternative corporate tax reforms on the 30 Dow Jones companies. The...

I analyze cliff discounts when an incumbent monopolist faces competition from a competitor that can compete for a portion (but not all) of the market, and compare them with both simple pricing and pricing formulas in which the incumbent can cut prices just in the competitive portion of the...

This paper extends the mark-up rule relating a firm's profit-maximizing price to its marginal cost and its elasticity of residual demand to the news vendor problem with endogenous pricing. Two adjustments are necessary. First, the relevant elasticity of demand is the elasticity of the average...

The new US Department of Justice and Federal Trade Commission vertical merger guidelines promise enforcement based on how vertical mergers are likely to affect static pricing incentives, but the techniques for making robust predictions about the price effects of vertical mergers are...