Technological Tying

Authors:
Daniel E. Gaynor
Working Paper:
284
This paper explores a firm's incentive to technologically tie when R&D is important and finds that technological tying increases innovation, which is an efficiency not considered in other tying models. Intuitively, technological tying protects the seller from aftermarket entry, ensuring that the seller internalizes the full effect of increased investment in technology on system profits. More importantly, the additional innovation, associated with technological tying, may benefit consumers more than anticompetitive effects hurt them, suggesting that innovation efficiency should be an important consideration in technological tying cases.