Credible commitment through product bundlingy

This paper analyzes the implications of Stackelberg leadership and bundling of a multiproduct \u85rm when markets can be asymmetric. Firstly, it is shown that a multiproduct \u85rm always has an incentive to be the Stackelberg leader although this \u85rst mover advantage does not necessarily increase pro\u85ts in its two markets simultaneously. Sec-ondly, the pro\u85tability of bundling with Cournot competition, as a means to leverage market power from one market to another market, is highly dependent on the market asymmetry. When one market is much larger than the other market, it is not pro\u85table for the multi-product rm to bundle its commodities. Moreover, when it is pro\u85table for the multiproduct \u85rm to bundle, bundling is welfare decreasing. Thirdly, the optimal strategy for the multiproduct \u85rm is always to pursue Stackelberg leadership. However, as this equilibrium might not be stable, both bundling and no bundling can then be pro\u85table but reverse tendencies apply to total surplus. Part of this work has been accomplished during a visit of Jan Vandekerckhove at the University of Milan-Bicocca. Special thanks are due to Federico Etro. yThis is work in progress. Please, do not cite without the permission of the authors