Integration of Complementary Multiproduct Firms

Two firms offer product series from which multiple complementary pairs are formed. The firms engage in a price- or quantity-choosing game in the market. It is found that the integration of the two firms may not necessarily lower the equilibrium prices because it precludes “indirect competition” in the market. Therefore, the integration, which may appear as a vertical integration, could be an antitrust concern even in the absence of exclusionary purpose.

How Does Firm Scope Depend on Customer Switching Costs? Evidence from Mobile Telecommunications Markets

This paper examines the relative advantages of single-product and multiproduct firms following changes in customer switching costs. Whereas a single-product firm can closely tailor offerings to customers’ needs, a multiproduct firm can create value for customers in the form of flexibility, allowing them to change between product varieties as preferences evolve without needing to switch providers. We argue that this value-creation mechanism is more effective when customers face high switching costs and explore this prediction in the mobile telecommunications sector, using an exogenous policy change (mobile number portability) that suddenly decreases customer switching costs. Our results reveal that when customer switching costs fall, multiproduct firms see lower growth than single-product firms, and entry with a multiproduct offering becomes less frequent than before. The study highlights how customer switching costs can enable or inhibit choices of firm scope. This paper was accepted by Joshua Gans, business strategy.

Leniency Programs and Cartel Organization of Multiproduct Firms

When multi-product firms make simultaneous price-fixing agreements in different markets, they may compartmentalize these agreements by having different individuals manage them so as to avoid the contagion of antitrust authority investigations. Leniency programs can overcome this strategy but may also lead to procollusive effects for centralized firms. The introduction of US amnesty plus programs can have different competitive effects, and leniency programs may modify firms’ choice of internal structure.

Entry and Exit, Multiproduct Firms, and Allocative Distortions

Most studies quantifying the gains from reversing allocative distortions are static in nature. We propose a model of firm dynamics featuring entry, exit, and multiproduct firms to understand the contribution of these dynamic factors in shaping the welfare and long-run productivity gains from removing distortions. We find that while the entry and exit of firms and their product-portfolio choices exert countervailing forces over long-run total factor productivity (TFP), they reinforce each other in shaping the welfare gains from reversing misallocation. Welfare gains, which account for transition dynamics, become more than twice as high as the long-run changes in TFP. (JEL D21, D24, D61, L11, O41)