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Abstract for:

Leveraging Monopoly Power by Degrading Interoperability: Theory and Evidence from Computer Markets

Christos  Genakos,  Kai Uwe  Kühn,  John  Van Reenen,  July 2011
Paper No' CEPDP1060: | Full paper (pdf)
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Keywords: Foreclosure; anti-trust, demand estimation, interoperability

JEL Classification: C3; D43; L1; L4

Is hard copy/paper copy available? YES - Paper Copy Still In Print.
This Paper is published under the following series: CEP Discussion Papers
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When will a monopolist have incentives to foreclose a complementary market by degrading compatibility/interoperability of his products with those of rivals? We develop a framework where leveraging extracts more rents from the monopoly market by “restoring” second degree price discrimination. In a random coefficient model with complements we derive a policy test for when incentives to reduce rival quality will hold. Our application is to Microsoft’s strategic incentives to leverage market power from personal computer to server operating systems. We estimate a structural random coefficients demand system which allows for complements (PCs and servers). Our estimates suggest that there were incentives to reduce interoperability which were particularly strong at the turn of the 21st Century.