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Abstract | |||||||||||||||
| In this paper we address the possibility of horizontal foreclosure in markets for complementary services (software) where the consumption value of durables (hardware) depends on the availability of software. Horizontal foreclosure occurs when a hardware firm merges with a software firm and the integrated firm ceases to supply compatible software for a rival technology. We find that horizontal foreclosure can be an equilibrium outcome where both the merger and compatibility decisions are part of a multistage game which permits the foreclosed firm to play a number of counter- strategies. Moreover, foreclosure may result in monopolization of the hardware market. We find that the foreclosure equilibrium is inefficient: total surplus would be higher without foreclosure. We would like to thank C. Fershtman, A. Fishman, P. Kennedy, O. Shy, D. Sibley and seminar participants at the Summer in Tel-Aviv Mini-Conference on Networks, Simon Fraser University, and the University of Victoria. Church gratefully acknowledges the | |||||||||||||||
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