On Stability in Competition: Tying and Horizontal Product Differentiation

We combine Hotelling’s model of product differentiation with tie-in sales. A monopolist in one market competes with another firm in a second market. In equilibrium firms choose zero product differentiation. Due to the tying structure no firm can gain the whole market by a small price reduction. A differentiation effect due to tie-in sales leads to this equilibrium stability. Copyright Springer Science+Business Media, LLC 2007Horizontal product differentiation, Hotelling, Tie-in sales, Equilibrium existence, D43, L10, L11, L13,