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The Role of Upstream‐Downstream Competition on Bundling Decisions: Should Regulators Force Firms to Unbundle?

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  • Adam D. Rennhoff
  • Konstantinos Serfes
Abstract
We develop an upstream–downstream model to analyze downstream firms' incentives to bundle. In our framework, the upstream firms are content providers (such as television stations) and the downstream firms are system operators (such as cable/satellite operators). We show that an a la carte regulation (i.e., a regulation that forces downstream firms to unbundle) leads to higher consumer surplus, if the unregulated equilibrium exhibits pure bundling (PB). Hence, our model predicts that in the television industry, which is mainly characterized by PB, an a la carte regulation will be beneficial for the consumers. If, on the other hand, the unregulated equilibrium is characterized by mixed bundling, then an a la carte regulation will increase consumer welfare provided that demand for multiple purchases is strong.

Suggested Citation

  • Adam D. Rennhoff & Konstantinos Serfes, 2009. "The Role of Upstream‐Downstream Competition on Bundling Decisions: Should Regulators Force Firms to Unbundle?," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 18(2), pages 547-588, June.
    • Handle: RePEc:bla:jemstr:v:18:y:2009:i:2:p:547-588
    DOI: 10.1111/j.1530-9134.2009.00222.x
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    References listed on IDEAS

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    Cited by:

    1. Hurren, Konrad, 2014. "The Microeconomics of Television Markets," Working Paper Series 19276, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.
    2. Gregory S. Crawford & Ali Yurukoglu, 2012. "The Welfare Effects of Bundling in Multichannel Television Markets," American Economic Review, American Economic Association, vol. 102(2), pages 643-685, April.
    3. Akifumi Ishihara & Noriyuki Yanagawa, 2013. "Dark Sides of Patent Pools with Compulsory Independent Licensing," CARF F-Series CARF-F-318, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
    4. Chen, Minghua & Rennhoff, Adam D. & Serfes, Konstantinos, 2016. "Bundling, à la carte pricing and vertical bargaining in a two-sided model," Information Economics and Policy, Elsevier, vol. 35(C), pages 30-44.
    5. Tseng, Kuo-Feng, 2019. "The Digital Cable TV Pricing Mechanism and the Consumer Preferences: the Survey in Taiwan," 30th European Regional ITS Conference, Helsinki 2019 205219, International Telecommunications Society (ITS).
    6. repec:vuw:vuwscr:19276 is not listed on IDEAS
    7. Qing Hu & Tomomichi Mizuno, 2021. "Positive Effects of Bundling on Rival's Profit and Social Welfare in a Vertical Relationship," Economics Bulletin, AccessEcon, vol. 41(1), pages 85-92.
    8. Correa, Alexander, 2020. "Empaquetamiento e incentivos para mejoras en calidad || Packaging and quality improvements," Revista de Métodos Cuantitativos para la Economía y la Empresa = Journal of Quantitative Methods for Economics and Business Administration, Universidad Pablo de Olavide, Department of Quantitative Methods for Economics and Business Administration, vol. 30(1), pages 163-195, December.
    9. Anja Lambrecht & Katja Seim & Naufel Vilcassim & Amar Cheema & Yuxin Chen & Gregory Crawford & Kartik Hosanagar & Raghuram Iyengar & Oded Koenigsberg & Robin Lee & Eugenio Miravete & Ozge Sahin, 2012. "Price discrimination in service industries," Marketing Letters, Springer, vol. 23(2), pages 423-438, June.
    10. Gregory Crawford, 2008. "The discriminatory incentives to bundle in the cable television industry," Quantitative Marketing and Economics (QME), Springer, vol. 6(1), pages 41-78, March.
    11. Angelika Endres-Fröhlich & Burkhard Hehenkamp & Joachim Heinzel, 2022. "The Impact of Product Differentiation on Retail Bundling in a Vertical Market," Working Papers Dissertations 91, Paderborn University, Faculty of Business Administration and Economics.
    12. Hurren, Konrad, 2014. "The Microeconomics of Television Markets," Working Paper Series 4283, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.
    13. Leslie Marx, 2006. "Economics at the Federal Communications Commission," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 29(4), pages 349-368, December.
    14. Joachim Heinzel, 2019. "Bundling in a Distribution Channel with Retail Competition," Working Papers CIE 120, Paderborn University, CIE Center for International Economics.

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