Product Improvement and Technological Tying in a Winner-Take-All Market

Competition Policy and Antitrust

Article Snapshot


Richard Gilbert and Michael Riordan


Journal of Industrial Economics, Vol. 55, No. 1, 2007, pp. 113-139


This paper looks at how suppliers can harm competitors.

Policy Relevance

Suppliers that make their products work poorly with rivals' products can harm their rivals. Sometimes, this harms consumers as well.

Main Points

  • “Tying” is when a firm requires customers to purchase product B when they buy product A. Bundling is when a firm encourages customers to buy both, perhaps by offering a discount. Firms that only offer products together must give up potential profits from selling the products alone.

  • Some firms supply essential components that consumers use to work with other products. Examples including operating systems like Windows, local telephone networks, and electrical transmission facilities.

  • “Technological tying” happens when a firm makes product B work best with product A. Firms do not give up all their profits from stand-alone sales. The supplier has incentives to innovate to improve the product, but can also harm rivals by making it hard for the rivals to buy and resell the product.
    • When factors like regulation require suppliers to charge only low prices for their product to rivals, technological tying becomes more appealing.

  • Supporters of the antitrust case against Microsoft argued that Internet Explorer succeeded because Microsoft harmed rivals through tying. Defenders of Microsoft argued that Explorer was a better product. But as Microsoft used technological tying, Explorer might have become better, while Microsoft also harmed rivals.

  • Whether technological tying harms consumers depends on details of pricing and product offerings.

Get The Article

Find the full article online

Search for Full Article