A BEJEAP Topics article.

Abstract

I investigate the competition between suppliers of components of a system for which there are network effects among users. Bundling one of these components with an outside good reduces the cost to consumers of using the system. This cost reduction is not necessarily welfare-enhancing, and bundling can also reduce welfare by decreasing innovation incentives. The model is used to evaluate Microsoft's bundling of Windows with Internet Explorer and its effect on competition with Netscape.

Submitted: April 29, 2002 · Accepted: July 3, 2002 · Published: July 23, 2002

Originally published in Topics in Economic Analysis & Policy.

Recommended Citation

Clements, Matthew T. (2002) "System Components, Network Effects, and Bundling," Topics in Economic Analysis & Policy: Vol. 2 : Iss. 1, Article 7.
Available at: http://www.bepress.com/bejeap/topics/vol2/iss1/art7